BOOK IV. OBLIGATIONS AND CONTRACTS TITLE I. OBLIGATIONS (ARTS. 1156-1304) 1. RCPI vs. Alfonso Verchez, GR 164349, Jan. 31, 2006 By: Abueg, Raponcel Doctrine: The court may award moral damages in cases of breach of contract where the defendant was guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual obligation. Facts: On January 21, 1991, Editha was confined at Sorsogon Provincial Hospital. On that same day, her daughter Grace went to RCPI to send a telegram to her sister (Zenaida) in Manila asking Zenaida to send her money because their mother is sick. Three days after, Grace received no response from Zenaida. So she sent a letter to Zenaida through JRS Express and even reprimanding her sister for not sending any financial aid. Immediately after Zenaida received the letter, she and her husband went to Sorsogon. On her arrival at Sorsogon, she disclaimed having received any telegram. The telegram was finally delivered to Zenaida 25 days later or on February 15, 1991.When asked, RCPI said that there were technical difficulties in the radio transmitter which caused the delay. On April 17, 1992, Editha died. Editha’s husband, with his daughters Grace and Zenaida and their respective spouses, filed a complaint against RCPI for damages. They alleged that, the delay in delivering the telegram contributed to the early demise of the late Editha. Issue/s: Whether or not RCPI breached the contract and therefore liable for damages. Ruling: YES. The failure of RCPI to deliver the telegram containing the message of Grace on time consists in a breach of contract as to the contracting party, Grace. The other plaintiffs may be awarded damages under the quasi-delict having no contractual relationship with RCPI. RCPI’s business obligated it to dispatch the telegram to the addressee at the earliest possible time but that it did not in view of the negligence of its employees to repair its radio transmitter and the concomitant delay in delivering the telegram on time After RCPI’s first attempt to deliver the telegram failed, it did not inform Grace of the non-delivery thereof and waited for 12 days before trying to deliver it again, knowing – as it should know – that time is of the essence in the delivery of telegrams. When its second long-delayed attempt to deliver the telegram again failed, it, again, waited for another 12 days before making a third attempt. Such nonchalance in performing its urgent obligation indicates gross negligence amounting to bad faith. 2. Barzaga vs. CA et. al., 268 SCRA 105, GR 115129, Feb. 12, 1997 By: Alegre, Kristine Joyce Doctrine: Those who in the performance of their obligation are guilty of fraud, negligence, or delay and those who in any manner contravene the tenor thereof, are liable for damages. (ART 1170) Also, note: Reciprocal Obligations (ART 1169, last par.) Facts: Ignacio Barzaga’s (Ignacio) wife suffered from a debilitating ailment and was told by her doctors that she was dying. As such, prior to her death, she requested to be laid to rest before Christmas day. After her passing, Ignacio bought materials from private respondents for the construction of her niche. Private respondents however failed to deliver the materials on the agreed time and date despite repeated follow-ups by Ignacio. The niche was completed in the afternoon of the 27th of December, and Barzaga's wife was finally laid to rest. She was finally laid to rest two-and-a-half (2-1/2) days behind schedule. Barzaga asked Alviar for recompense but the latter did not reply. Hence, Barzaga filed a case against Alviar. The RTC held Alviar to be in delay and granted damages to Ignacio. Upon appeal, the CA reversed the RTC decision and ruled that there was no contractual commitment as to the exact time of delivery since this was not indicated in the invoice receipts covering the sale Issue/s: Was Alviar is liable to Ignacio for the delay and thus liable for damages? Ruling: YES. Herein, Alviar is guilty of non-performance of a reciprocal obligation. In their contract of purchase and sale, Ignacio had already complied fully with what was required of him as purchaser, i.e., the payment of the purchase price of P2,110.00. It was incumbent upon Alviar to immediately fulfill his obligation to deliver the goods otherwise delay would attach. Alviar states that it is due to a fortuitous event (flat tire) that he incurred a "bit of delay" in the delivery of petitioner's purchases. He claims that Ignacio should have allowed his delivery men more time to bring the construction materials over to the cemetery since a few hours more would not really matter. But the court held that private respondent had no right to manipulate petitioner's timetable and substitute it with his own. Here, Ignacio had a deadline to meet since he not only had to finish the niche but also had to attend to other pressing family concerns. Despite this, respondent's employees still made light of his earnest request for an immediate delivery of the materials. The court thus sustained the award for both moral and exemplary damages. It cannot be denied that petitioner and his family suffered wounded feelings, mental anguish and serious anxiety while keeping watch on Christmas day over the remains of their loved one who could not be laid to rest on Christmas day. This sufficiently entitles petitioner Ignacio Barzaga to be indemnified for the damage he suffered as a consequence of delay or a contractual breach. The law expressly provides that those who in the performance of their obligation are guilty of fraud, negligence, or delay and those who in any manner contravene the tenor thereof, are liable for damages. SC: Court of Appeals Decision reversed. 3. Selegna Management Corporation vs. United Coconut Planters Bank G.R. No. 165662 Doctrine: There are three requisites necessary for a finding of default. First, the obligation is demandable and liquidated; second, the debtor delays performance; third, the creditor judicially or extra-judicially requires the debtor’s performance. Facts: On Sept. 19, 1995, Petitioners Selegna Management and Development Corporation and Spouses Edgardo and Zenaida Angeles were granted a credit facility in the amount of P70 million by Respondent United Coconut Planters Bank (UCPB). As security for this credit facility, petitioners executed real estate mortgages over several parcels of land located in the cities of Muntinlupa, Las Piñas, Antipolo and Quezon; and over several condominium units in Makati. Petitioners were likewise required to execute a promissory note in favor of respondent every time they availed of the credit facility. As required in these notes, they paid the interest in monthly amortizations. The parties stipulated in their Credit Agreement dated September 19, 1995, that failure to pay any availment of the accommodation or interest, or any sum due shall constitute an event of default, which shall consequently allow respondent bank to declare as immediately due and payable] all outstanding availments of the accommodation together with accrued interest and any other sum payable. In need of further business capital, petitioners obtained from UCPB an increase in their credit facility. For this purpose, they executed a Promissory Note for P103,909,710.82, which was to mature on March 26, 1999. In the same note, they agreed to an interest rate of 21.75 percent per annum, payable by monthly amortizations. On Dec. 21, 1998, respondent sent petitioners a demand letter to pay asking to pay its obligation, total amount of P14,959,525.10 which includes unpaid interest. Respondent decided to invoke the acceleration provision in their Credit Agreement. Respondent Bank sent another letter of demand on March 4, 1999. It contained a final demand on petitioners to settle in full petitioners’ said past due obligation to UCPB within five (5) days from petitioners receipt of the letter. In response, petitioners paid respondent the amount of P10,199,473.96 as partial payment of the accrued interests. Apparently unsatisfied, UCPB applied for extrajudicial foreclosure of petitioners’ mortgaged properties. When petitioners received the Notice of Extra Judicial Foreclosure Sale on May 18, 1999, they requested UCPB to give them a period of sixty (60) days to update their accrued interest charges; and to restructure or, in the alternative, to negotiate for a takeout of their account. In order to forestall the extrajudicial foreclosure scheduled for May 31, 1999, petitioners filed a Complaint for Damages, Annulment of Interest, Penalty Increase and Accounting with Prayer for Temporary Restraining Order/ Preliminary Injunction. All subsequent proceedings in the trial court and in the CA involved only the propriety of issuing a TRO and a writ of preliminary injunction. Issue/s: Whether or not the Petitioners are in default. Ruling: YES. It is a settled rule of law that foreclosure is proper when the debtors are in default of the payment of their obligation. In fact, the parties stipulated in their credit agreements, mortgage contracts and promissory notes that respondent was authorized to foreclose on the mortgages, in case of a default by petitioners. That this authority was granted is not disputed. Mora solvendi, or debtor’s default, is defined as a delay in the fulfillment of an obligation, by reason of a cause imputable to the debtor. There are three requisites necessary for a finding of default. First, the obligation is demandable and liquidated; second, the debtor delays performance; third, the creditor judicially or extra-judicially requires the debtor’s performance. In the present case, the Promissory Note executed on March 29, 1998, expressly states that petitioners had an obligation to pay monthly interest on the principal obligation. From respondent’s demand letter, it is clear and undisputed by petitioners that they failed to meet those monthly payments since May 30, 1998. Their nonpayment is defined as an "event of default" in the parties’ Credit Agreement. Considering that the contract is the law between the parties, respondent is justified in invoking the acceleration clause declaring the entire obligation immediately due and payable. That clause obliged petitioners to pay the entire loan on January 29, 1999, the date fixed by respondent. The foregoing discussion satisfactorily shows that UCPB had every right to apply for extrajudicial foreclosure on the basis of petitioners’ undisputed and continuing default. A debt is liquidated when the amount is known or is determinable by inspection of the terms and conditions of the relevant promissory notes and related documentation. Failure to furnish a debtor a detailed statement of account does not ipso facto result in an unliquidated obligation. Petitioners executed a Promissory Note, in which they stated that their principal obligation was in the amount of P103,909,710.82, subject to an interest rate of 21.75 percent per annum. Pursuant to the parties’ Credit Agreement, petitioners likewise know that any delay in the payment of the principal obligation will subject them to a penalty charge of one percent per month, computed from the due date until the obligation is paid in full. It is in fact clear from the agreement of the parties that when the payment is accelerated due to an event of default, the penalty charge shall be based on the total principal amount outstanding, to be computed from the date of acceleration until the obligation is paid in full. Their Credit Agreement even provides for the application of payments. It appears from the agreements that the amount of total obligation is known or, at the very least, determinable. 4. General Milling Corporation Vs Sps. Ramos G.R. No. 193723 July 20, 2011 By: Aricheta, Paula Doctrine: Article 1169 of the Civil Code states that: those obligated to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. Demand is necessary for delay to exist unless the contract states that no such demand is needed. Facts: General Milling Corporation (GMC) entered into a Growers Contract with spouses Librado and Remedios Ramos (Spouses Ramos). Under the contract, GMC was to supply broiler chickens for the spouses to raise on their land. To guarantee full compliance, the Growers Contract was accompanied by a Deed of Real Estate Mortgage over a piece of real property and a surety bond. Spouses Ramos eventually were unable to settle their account with GMC. The property was extrajudicially foreclosed and GMC was the highest bidder. Spouses Ramos questioned the validity of the foreclosure proceedings. The CA found that GMC made no demand to spouses Ramos for the full payment of their obligation. A perusal of the letters presented and offered as evidence by defendant-appellant GMC did not “demand” but only request spouses Ramos to go to the office of GMC to “discuss” the settlement of their account. Issue: WON GMC made sufficient demand to the spouses Ramos to fulfill their obligation? Ruling: No. There are three requisites necessary for a finding of default. 1.the obligation is demandable and liquidated; 2. the debtor delays performance; and 3. the creditor judicially or extrajudicially requires the debtor's performance. According to the CA, GMC did not make a demand on Spouses Ramos but merely requested them to go to GMCs office to discuss the settlement of their account. In spite of the lack of demand made on the spouses, however, GMC proceeded with the foreclosure proceedings. Neither was there any provision in the Deed of Real Estate Mortgage allowing GMC to extrajudicially foreclose the mortgage without need of demand.Article 1169 of the Civil Code states that: those obligated to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. However, the demand by the creditor shall not be necessary in order that delay may exist, when the obligation or the law expressly so declares. The Deed of Real Estate Mortgage (contract) in the instant case has no such provision stating that demand is not necessary for delay to exist. GMC should have first made a demand on the spouses before proceeding to foreclose the real estate mortgage. 5. SOLIDBANK CORPORATION/ METROPOLITAN BANK AND TRUST COMPANY V SPOUSES PETER and SUSAN TAN DOCTRINE: “We enunciated that the degree of diligence required of banks is more than that of a good father of a family in keeping with their responsibility to exercise the necessary care and prudence in handling their clients’ money.” FACTS: Spouses Tan’s representative, Frias, deposited with Solidbank ten checks. Neri, Solidbank’s teller no. 8 received two deposit slips for the checks, an original and a duplicate. Neri verified the checks and their amounts in the deposit slips then returned the duplicate copy to Frias and kept the original copy for Solidbank. The usual practice between the parties, Sps. Tan’s passbook was left with Solidbank for the recording of the deposits on the bank’s ledger. The Tans retrieved the passbook and discovered that one Metrobank check was not posted. Tans immediately notified Solidbank of the problem. Solidbank showed Sps Tan a duplicate copy of a deposit slip list of checks deposited by Frias but it did not include the missing check. The deposit slip bore the stamp mark "teller no. 7" instead of "teller no. 8" who previously received the checks. Later on, Tan learned from Metrobank that the same check was cleared and was deposited by a certain Dolores Lagsac in Premier Bank in Laguna. Sps. Tan demanded that Solidbank to pay the amount of the check but it refused, hence, they filed a case for collection of a sum of money. In its answer, petitioner averred that the deposit slips Frias used when she deposited the checks were spurious. Petitioner accused respondents of engaging in a scheme to illegally exact money from it. It added that, contrary to the claim of respondents, it was "teller no. 7" who received the deposit slips and, although respondents insisted that Frias deposited ten checks, only nine checks were actually received by said teller. By way of counterclaim, it sought payment of ₱1,000,000 as actual and moral damages and ₱500,000 as exemplary damages. RTC ruled in favor of Sps. Tan. CA which affirmed the decision of the RTC. Solidbank filed a motion for reconsideration but the CA dismissed it. ISSUE: WON Solidbank was negligent for the loss of the check thereby having failed to exercise the due diligence of a good father of a family as required by the Civil Code for the award of damages on the part of Sps. Tan. HELD: YES. The court held that Solidbank was negligent on Article 1173 of the Civil Code. The trial court merely made reference to the kind of diligence that petitioner should have performed under the circumstances. In other words, like a common carrier whose business is also imbued with public interest, petitioner should have exercised extraordinary diligence to negate its liability to respondents. Assuming arguendo that the trial court indeed used the provisions on common carriers to pin down liability on petitioner, still we see no reason to strike down the RTC and CA rulings on this ground alone. In one case, the Court did not hesitate to apply the doctrine of last clear chance (commonly used in transportation laws involving common carriers) to a banking transaction where it adjudged the bank responsible for the encashment of a forged check. There, we enunciated that the degree of diligence required of banks is more than that of a good father of a family in keeping with their responsibility to exercise the necessary care and prudence in handling their clients’ money. We find no compelling reason to disallow the application of the provisions on common carriers to this case if only to emphasize the fact that banking institutions (like petitioner) have the duty to exercise the highest degree of diligence when transacting with the public. By the nature of their business, they are required to observe the highest standards of integrity and performance, and utmost assiduousness as well. Friendship and Cooperation, which events constituted force majeure under the Agreement. 6. Phil. Communications Satellite Corp. vs. Globe Telecom, Inc., GR 147324, May 25, 2004 By: Bautista, Kresnie Anne F. Issue/s: Were the termination of the RP-US Military Bases Agreement, the non-ratification of the Treaty of Friendship, Cooperation and Security, and the consequent withdrawal of US military forces and personnel from Cubi Point constitute force majeure which would exempt Globe from complying with its obligation to pay rentals under its Agreement with Philcomsat Ruling: YES. In Article 1174, which exempts an obligor from liability on account of fortuitous events or force majeure, refers not only to events that are unforeseeable, but also to those which are foreseeable, but inevitable: Doctrine: Article 1174, which exempts an obligor from liability on account of fortuitous events or force majeure, refers not only to events that are unforeseeable, but also to those which are foreseeable, but inevitable. (ART 1174) Facts: Globe Telecom, had been engaged for various communication facilities for the US military bases in Clark Air Base and Subic Naval Base.. The said communication facilities are for the exclusive use of the US Defense Communications Agency (USDCA), and for security reasons, were operated only by its personnel or those of American companies contracted by it to operate said facilities. The USDCA contracted with said American companies, and the latter, in turn, contracted with Globe for the use of the communication facilities. Globe, on the other hand, contracted with local service providers such as the Philcomsat for the installation of the earth station. In 1992, the US military personnel withdrew from Subic Naval Base. Globe then notify Philcomsat of its intention to discontinue the use of earth station citing that the withdrawal constitutes a force majeure or fortuitous event. After the US military forces left Subic Naval Base, Philcomsat sent Globe a letter in 1993 demanding payment of its outstanding obligations under the Agreement. However, Globe refused to heed Philcomsats demand. Globe argued that it was constrained to end the Agreement due to the termination of the RP-US Military Bases Agreement and the non-ratification by the Senate of the Treaty of Art. 1174. Except in cases specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which, could not be foreseen, or which, though foreseen were inevitable. A fortuitous event under Article 1174 may either be an “act of God,” or natural occurrences such as floods or typhoons, or an “act of man,” such as riots, strikes or wars. Philcomsat and Globe agreed in Section 8 of the Agreement that the following events shall be deemed events constituting force majeure: 1.Any law, order, regulation, direction or request of the Philippine Government; 2.Strikes or other labor difficulties; 3.Insurrection; 4.Riots; 5.National emergencies; 6.War; 7.Acts of public enemies; 8.Fire, floods, typhoons or other catastrophies or acts of God; 9.Other circumstances beyond the control of the parties. 10.Clearly, the foregoing are either unforeseeable, or foreseeable but beyond the control of the parties. There is nothing in the enumeration that runs contrary to, or expands, the concept of a fortuitous event under Article 1174. In order that Globe may be exempt from non-compliance with its obligation to pay rentals under Section 8, the concurrence of the following elements must be established: (1) the event must be independent of the human will; (2) the occurrence must render it impossible for the debtor to fulfill the obligation in a normal manner; and (3) the obligor must be free of participation in, or aggravation of, the injury to the creditor. The abovementioned requisites are present in the instant case. Philcomsat and Globe had no control over the non-renewal of the term of the RP-US Military Bases Agreement when the same expired in 1991, because the prerogative to ratify the treaty extending the life thereof belonged to the Senate. Neither did the parties have control over the subsequent withdrawal of the US military forces and personnel from Cubi Point SC: Court of Appeals ruling affirmed. 7. Fil-Estate Properties, Inc. vs. Spouses Ronquillo, GR 185798, Jan. 13, 2014 By: Bernardez, Ivy Clarize Doctrine: The non-performance of petitioners’ obligation entitles respondents to rescission under Article 1191 of the New Civil Code Facts: Petitioner Fil-Estate Properties, Inc. is the owner and developer of the Central Park Place Tower while co-petitioner Fil-Estate Network, Inc. is its authorized marketing agent. Respondent Spouses Conrado and Maria Victoria Ronquillo purchased from petitioners an 82-square meter condominium unit for a pre-selling contract price of P5,174,000.00. On 29 August 1997, respondents executed and signed a Reservation Application Agreement wherein they deposited P200,000.00 as reservation fee. As agreed upon, respondents paid the full downpayment of P1,552,200.00 and had been paying the P63,363.33 monthly amortizations until September 1998. Upon learning that construction works had stopped, respondents likewise stopped paying their monthly amortization. Claiming to have paid a total of P2,198,949.96 to petitioners, respondents through two (2) successive letters, demanded a full refund of their payment with interest. When their demands went unheeded, respondents were constrained to file a Complaint for Refund and Damages before the Housing and Land Use Regulatory Board (HLURB). Respondents prayed for reimbursement/refund of P2,198,949.96 representing the total amortization payments, P200,000.00 as and by way of moral damages, attorney’s fees and other litigation expenses. On 13 June 2002, the HLURB in favor of herein respondents. The Arbiter considered petitioners’ failure to develop the condominium project as a substantial breach of their obligation which entitles respondents to seek for rescission with payment of damages. The Arbiter also stated that mere economic hardship is not an excuse for contractual and legal delay. Issue: Whether or not the Asian financial crisis constitute a fortuitous event which would justify delay by petitioners in the performance of their contractual obligation Ruling: No. The Supreme Court held that the Asian financial crisis is not a fortuitous event that would excuse petitioners from performing their contractual obligation. The Court ruled that “we cannot generalize that the Asian financial crisis in 1997 was unforeseeable and beyond the control of a business corporation. It is unfortunate that petitioner apparently met with considerable difficulty e.g. increase cost of materials and labor, even before the scheduled commencement of its real estate project as early as 1995. However, a real estate enterprise engaged in the pre-selling of condominium units is concededly a master in projections on commodities and currency movements and business risks. The fluctuating movement of the Philippine peso in the foreign exchange market is an everyday occurrence, and fluctuations in currency exchange rates happen everyday, thus, not an instance of caso fortuito.” 8. Manlar Rice Mill Inc. v. Lourdes Deyto G.R. No. 191189 January 29, 2014 Doctrine: There is a solidary liability only when the obligation expressly so states, when the law so provides or when the nature of the obligation so requires. Facts: Respondent Ang(Deyto’s daughter) entered into a rice supply contract with Petitioner Manlar Rice Mill Inc. (Manlar) where the former purchased rice from the latter. This transaction was covered by nine (9) postdated checks issued by Ang from her personal bank/checking account. Upon presentment, all nine (9) checks were dishonored. Manlar made oral and written demands upon respondents Deyto and Ang, which went unheeded. It appears that during the time of demand, Ang cannot be located. Thus, Manlar filed a Complaint for Sum of Money against Deyto and Ang before the RTC seeking to hold respondents solidarily liable on the rice supply contract. Deyto filed her Answer claiming that she did not contract with Manlar or any of its representatives regarding the purchase and delivery of rice. She further argued that Manlar’s claim has no factual and legal basis, that its claim is not supported by documentary evidence, and that Manlar’s impleading her is simply a desperate strategy or attempt to recover its losses from her, considering that Janet Ang can no longer be located. The RTC ruled in favour of the petitioner, however, the CA reversed and dismissed the complaint. Issue: Whether or not Deyto can be held solidarily liable with Ang for what the latter owes to Manlar. Ruling: NO. Deyto cannot be held solidarily liable with Ang. Well entrenched is the rule that solidary obligation cannot lightly inferred. There is a solidary liability only when the obligation expressly so states, when the law so provides or when the nature of the obligation so requires. In this case, there is no legal basis to hold Deyto solidarily liable with Ang for what the latter may owe Manlar. The evidence does not support Manlar’s view that both Deyto and Ang contracted with Manlar for the delivery of the rice on credit. It shows that it was Ang alone who entered into the rice supply agreement with Manlar. In addition to that, Pua(sales manager of Manlar) admitted that their allegations that Deyto guaranteed Ang’s check and consented to held solidarily liable with Ang was not made in writing and just a verbal assurance. Such will not suffice. Also, the documentary evidence shows that the subject checks were issued from a bank account in Chinabank belonging to Ang alone. They did not emanate from an account that belonged to both Ang and Deyto. Therefore, Deyto cannot be held solidarily liable with Ang. Under article 1311 of the Civil Code “contracts take effect only between parties, their assigns and heirs.” Deyto is not a party to the rice supply contract. Thus, Manlar may not sue Deyto. 9. Traveller’s Insurance & Surety Com. vs CA, G.R. No. 82036, May 22, 1997 By: Bustamante, Anne Murphy Doctrine: While it is true that where the insurance contract provides for indemnity against liability to third persons, such third persons can directly sue the insurer, however, the direct liability of the insurer under indemnity contracts against thirdparty liability does not mean that the insurer can be held solidarily liable with the insured and/or the other parties found at fault. The liability of the insurer is based on contract; that of the insured is based on tort. Facts: Feliza Vineza de Mendoza, 78-year old woman, was bumped by a taxi that was running fast. Several persons witnessed the accident, among whom were Rolando Marvilla, Ernesto Lopez and Eulogio Tabalno. A good Samaritan that he was, Marvilla ran towards the old woman and held her on his lap to inquire from her what had happened. At this moment, a private jeep stopped. With the driver of that vehicle, the two helped board the old woman on the jeep and brought her to the Mary Johnston Hospital in Tondo. Ernesto Lopez, also witnessed the incident. Lopez told Mendoza brothers what had happened. The victim was brought to the U.S.T. Hospital where she expired at 9:00 o’clock that same morning. Death was caused by traumatic shock as a result of the severe injuries she sustained. The evidence shows that at the moment the victim was bumped by the vehicle, the latter was running fast, so much so that because of the strong impact the old woman was thrown away and she fell on the pavement. Three (3) witnesses who were at the scene at the time identified the taxi involved, though not necessarily the driver thereof. The eyewitnesses were unanimous in pointing to that Lady Love Taxi with Plate No. 438, obviously the vehicle involved herein. During the investigation, defendant Armando Abellon, the registered owner of Lady Love Taxi bearing No. 438-HA Pilipinas Taxi 1980, certified to the fact that the vehicle was driven last July 20, 1980 by one Rodrigo Dumlao. Private respondent filed a complaint for damages against Armando Abellon as the owner of the Lady Love Taxi and Rodrigo Dumlao as the driver of the Lady Love taxicab that bumped private respondents mother. Subsequently, private respondent amended his complaint to include petitioner as the compulsory insurer of the said taxicab. Trial court rendered judgment in favor of private respondent. CA Affirmed. Petitioner mainly contends that it did not issue an insurance policy as compulsory insurer of the Lady Love Taxi and that, assuming arguendo that it had indeed covered said taxicab for third-party liability insurance, private respondent failed to file a written notice of claim with petitioner as required by Section 384 of P.D. No. 612, otherwise known as the Insurance Code. Issue/s: Whether the petitioner is liable as an insurer of Lady Love Taxi. Ruling: No. It is significant to point out at this juncture that the right of a third person to sue the insurer depends on whether the contract of insurance is intended to benefit third persons also or only the insured. [A] policy x x x whereby the insurer agreed to indemnify the insured against all sums x x x which the Insured shall become legally liable to pay in respect of: a. death of or bodily injury to any person x x x is one for indemnity against liability; from the fact then that the insured is liable to the third person, such third person is entitled to sue the insurer. The right of the person injured to sue the insurer of the party at fault (insured), depends on whether the contract of insurance is intended to benefit third persons also or on the insured. And the test applied has been this: Where the contract provides for indemnity against liability to third persons, then third persons to whom the insured is liable can sue the insurer. Where the contract is for indemnity against actual loss or payment, then third persons cannot proceed against the insurer, the contract being solely to reimburse the insured for liability actually discharged by him thru payment to third persons, said third persons recourse being thus limited to the insured alone. Since private respondent failed to attach a copy of the insurance contract to his complaint, the trial court could not have been able to apprise itself of the real nature and pecuniary limits of petitioner’s liability. More importantly, the trial court could not have possibly ascertained the right of private respondent as third person to sue petitioner as insurer of the Lady Love taxicab because the trial court never saw nor read the insurance contract and learned of its terms and conditions. Apparently, the trial court did not distinguish between the private respondents cause of action against the owner and the driver of the Lady Love taxicab and his cause of action against petitioner. The former is based on torts and quasi-delicts while the latter is based on contract. Confusing these two sources of obligations as they arise from the same act of the taxicab fatally hitting private respondents mother, and in the face of overwhelming evidence of the reckless imprudence of the driver of the Lady Love taxicab, the trial court brushed aside its ignorance of the terms and conditions of the insurance contract and forthwith found all three - the driver of the taxicab, the owner of the taxicab, and the alleged insurer of the taxicab jointly and severally liable for actual, moral and exemplary damages as well as attorney’s fees and litigation expenses. This is clearly a misapplication of the law by the trial court, and respondent appellate court grievously erred in not having reversed the trial court on this ground. While it is true that where the insurance contract provides for indemnity against liability to third persons, such third persons can directly sue the insurer, however, the direct liability of the insurer under indemnity contracts against third-party liability does not mean that the insurer can be held solidarily liable with the insured and/or the other parties found at fault. The liability of the insurer is based on contract; that of the insured is based on tort. 10. Subic Bay Legend Resorts & Casinos, Inc. vs. Fernandez, GR 193426, Sept. 29, 2014 Doctrine: Any person in possession of genuine casino chips is presumed to have paid for their representative value in exchange therefor. These chips are paid for anyway; Bernard would not have parted with the same if their corresponding representative equivalent – in legal tender, goodwill, or otherwise – was not received by it in return or exchange. Facts: ●Ludwig visited the Legenda Hotel, a casino operated by Subic Bay Legend Resorts. ●The casino’s CCTV footage showed Ludwig changed $5,000 worth of chips into smaller denominations. ●Since it was unusual for a Filipino to play using dollar- denominated chips, casino security personnel paid closer attention to Ludwig. ●After playing a game of baccarat and winning $200, Ludwig redeemed casino chips worth $7,200. ●Days later, Ludwig and his brother Deoven entered the casino. ●After playing and losing, they encashed their chips, but their chips were “frozen.” ●They were then accosted by the casino’s security personnel and ordered to return the cash in their possession. ●They were separately interrogated and were made to confess that the chips were supplied by a casino employee. ●After release, Deoven retracted his statement. ●Bernard, Ludwig and Deoven’s brother, filed a complaint for recovery of sum of money and damages against the casino. ●According to him, he got the chips as payment for services rendered to a Chinese customer in his car shop and that he went to the casino and handed to his brothers $6,000 worth of chips belonging to him for use at the casino; thereat, the company personnel accosted his brothers and confiscated his casino chips worth $5,900.00, and failed to return the same to him despite demand. ●The casino argued that Bernard had no cause of action against it as the chips were stolen from the company, thus it had the right to retain them. ●After trial, RTC ruled that Bernard had possession of the chips and that the company failed to rebut the presumption that a person in possession of the thing is the lawful owner thereof. ●On appeal to the CA, the latter affirmed the RTC judgment. Thus, the casino appealed to the Supreme Court. Issue: Whether Bernard is the lawful possessor of the casino chips, entitling him to collect from the casino and award of damages. Held: YES. ●Though casino chips do not constitute legal tender, there is no law which prohibits their use or trade outside of the casino which issues them. ●In any case, it is not unusual – nor is it unlikely – that Bernard could be paid by his Chinese client at his car shop with the casino chips in question; said transaction, if not common, is nonetheless not unlawful. ●These chips are paid for anyway; Bernard would not have parted with the same if their corresponding representative equivalent – in legal tender, goodwill, or otherwise – was not received by it in return or exchange. ●Given this premise – that casino chips are considered to have been exchanged with their corresponding representative value – it is with more reason that this Court should require the company to prove convincingly and persuasively that the chips it confiscated from Ludwin and Deoven were indeed stolen from it; if so, any person in possession of genuine casino chips is presumed to have paid for their representative value in exchange therefor. ●If petitioner cannot prove its loss, the presumption that the chips were exchanged for value remains. 11. PHILIPPINE COMMERCIAL INTERNATIONAL BANK (now BDO UNIBANK,INC.), vs. ARTURO P. FRANCO G.R. No. 180069 March 5, 2014 By: CARLOMAN, Yasser A. Doctrine: One who pleads payment has the burden of proof. The Creditor’s possession of the documents of credit is prima facie evidence of non-payment. Facts: Arturo Franco secured from defendant PCIB Trust Indenture Certificates. That despite demands, defendants refused and still refuses to return to plaintiff the trust amounts, plus the stipulated interest. In several times, Arturo had visited the defendant bank to request for a status on his investments, bank officers would normally pull out his ledger card and show plaintiff the updated amount due him. Later, to his surprise, he received a letter signed by defendant’s counsel, in effect denying plaintiff’s request for payment by stating that due to the conversion of all outstanding PCIBank trust indenture accounts into common trust certificates, all such PCIBank trust indenture certificates have been rendered "null and void." Arturo prays for the payment of the amounts under the Trust Indenture Certificates, plus interest, moral and exemplary damages and attorney’s fees. Worse, the testimonies of petitioner Bank's own witnesses, reinforce, rather than belie, respondent's allegations of nonpayment. Issue: Who has the burden of proving payment? – Debtor Are the obligations already extinguished – No Furthermore, consignation must be done before the regular courts. Ruling: Jurisprudence abounds that, in civil cases, one who pleads payment has the burden of proving it. Even where the plaintiff must allege non-payment, the general rule is that the burden rests on the defendant to prove payment, rather than on the plaintiff to prove non-payment. When the creditor is in possession of the document of credit, he need not prove nonpayment for it is presumed. The creditor's possession of the evidence of debt is proof that the debt has not been discharged by payment. In this case, respondent's possession of the original copies of the subject TICs strongly supports his claim that petitioner Bank's obligation to return the principal plus interest of the money placement has not been extinguished. The TICs in the hands of respondent is a proof of indebtedness and a prima facie evidence that they have not been paid. Petitioner Bank could have easily presented documentary evidence to dispute the claim, but it did not. In its omission, it may be reasonably deduced that no evidence to that effect really exist. 12. Sps. Cacayorin vs. AFPMBAI. GR 171298, April 15, 2013 By: Cristobal, Ma. Corazon M. Doctrine: Tender of payment is not necessary in consignation cases where the ground for consignation is that the creditor is unknown, or does not appear at the place of payment; or is incapacitated to receive payment at the time it is due; or when, without just cause, he refuses to give a receipt; or when two or more persons claim the same right to collect; or when the title of the obligation has been lost. Facts: Sps. Cacayorin and the Rural Bank of San Teodoro executed a Loan and Mortgage Agreement with the former as borrowers and the Rural bank as lender. The Rural bank issued a letter of guaranty informing AFPMBAI that the proceeds of petitioners approved loan shall be released to AFPMBAI after title to the property is transferred in petitioner’s name and after the registration and annotation of the parties’ mortgage agreement. On the basis of the Rural Bank’s letter of guaranty, AFPMBAI executed in petiitoner’s favor a Deed of Absolute Sale, and a new title was issued. Unfortunately, the PAG-IBIG loan facility did not push through and the Rural Bank closed and was placed under Receivership by the PDIC. Meanwhile, AFPMBAI was able to take possession of petitioner’s loan documents while petitioners were unable to pay the loan/consideration for the property. Petitioners filed a Complaint for consignation of loan payment, recovery of title and cancellation of mortgage annotation against AFPMBAI. Petitioners alleged in their Complaint that as a result of the Rural Bank’s closure, they were left in a quandary as to where they should tender full payment of the loan and how to secure cancellation of the mortgage annotation. AFPMBAI filed a Motion to Dismiss claiming that petitioners’ Complaint falls within the jurisdiction of HLURB and not RTC, as it was filed by petitioners in their capacity as buyers of a subdivision and they also alleged that since no prior valid tender of payment was made by petitioners, the consignation case was fatally defective and susceptible to dismissal. proper case, and the announcement of the consignation in other cases. The above provision clearly precludes consignation in venues other than the courts. Elsewhere, what may be made is a valid tender of payment, but not consignation. While it may be true that petitioners’ claim relates to the terms and conditions of the sale of AFPMBAI’s subdivision lot, this is overshadowed by the fact that since the Complaint pleads for consignation, the HLURB is without jurisdiction to try it, as such may only be tried by the regular courts. Issues: 1) Whether the absence of valid tender of payment is fatal to consignation case? 2) Does the complaint fall within the exclusive jurisdiction of HLURB? 13. Ruling: Issue 1 No. The lack of prior tender of payment by the petitioners is not fatal to their consignation case. They filed the case for the exact reason that they were at a loss as to which between the two – the Rural Bank or AFPMBAI – was entitled to such a tender of payment. Article 1256 authorizes consignation alone, without need of prior tender of payment, where the ground for consignation is that the creditor is unknown, or does not appear at the place of payment; or is incapacitated to receive payment at the time it is due; or when, without just cause, he refuses to give a receipt; or when two or more persons claim the same right to collect; or when the title of the obligation has been lost. Issue 2 NO. Article 1258 – Consignation shall be made by depositing the things due at the disposal of judicial authority, before whom the tender of payment shall be proved, in a S P O U S E S M A N U E L a n d J O C E LY N BARREDO, petitioners, vs. SPOUSES EUSTAQUIO and EMILDA LEAO, respondents. DOCTRINE: Rescission of a contract will not be permitted for a slight or casual breach, but only such substantial and fundamental breach as would defeat the very object of the parties in making the agreement. FACTS: Petitioners spouses Manuel and Jocelyn Barredo (Barredo Spouses) bought a house and lot located along Lilac Road, Pilar Village, Las Pinas, Metro Manila, with the proceeds of a P50,000.00 loan from the Social Security System (SSS) which was payable in 25 years and an P88,400.00 loan from the Apex Mortgage and Loans Corporation (Apex) which was payable in 20 years. To secure the twin loans, they executed a first mortgage over the house and lot in favor of SSS and a second one in favor of Apex. On 1987, the Barredo Spouses sold their house and lot to respondents Eustaquio and Emilda Leao (Leao Spouses) by way of a Conditional Deed of Sale with Assumption of Mortgage. The Leao Spouses would pay the Barredo Spouses P200,000.00, P100,000.00, while the balance of P100,000.00 would be paid in ten (10) equal monthly installments after the signing of the contract. The Leao Spouses would also assume the first and second mortgages and pay the monthly amortizations to SSS and Apex beginning July 1987 until both obligations are fully paid. since the Barredo Spouses failed to notify the SSS of the assignment of their debt. As such, rescission should not obtain. In accordance with the agreement, the purchase price of P200,000.00 was paid to the Barredo Spouses who turned over the possession of the house and lot in favor of the Leao Spouses. RTC – ruled in favor of the Barredo Spouses. The assumption of mortgage debts of the Barredo Spouses by the Leao Spouses is a very substantial condition x x x x The credit standing of the (Barredo Spouses) will be greatly prejudiced should they appear delinquent or not paying at all. Two (2) years later, the Barredo Spouses initiated a complaint before the Regional Trial Court of Las Pias seeking the rescission of the contract on the ground that the Leao Spouses despite repeated demands failed to pay the mortgage amortizations to the SSS and Apex causing the Barredo Spouses great and irreparable damage. The Leao Spouses, however, denied their claim and stated that they were paying their obligations to Apex but were not able to pay the SSS amortizations because their payments were refused upon the instructions of the Barredo Spouses. Meanwhile, to save their credit standing, spouses Barredo paid mortgage loans and paid to the SSS. Petitioner’s contention (Barredo Spouses) - the terms of the agreement called for the strict compliance of two (2) equally essential and material obligations on the part of the Leao Spouses, namely, the payment of the P200,000.00 to them and the payment of the mortgage amortizations to the SSS and Apex. And, the Barredo Spouses undertook to execute the corresponding Deed of Absolute Sale only upon the faithful compliance by the Leao Spouses of the conditions set forth in their agreement. Respondent’s Contention (Leao Spouses) - they were only obliged to assume the amortization payments of the Barredo Spouses with the SSS and Apex, which they did upon signing the agreement. The contract does not stipulate as a condition the full payment of the SSS and Apex mortgages. Granting for arguments sake that their failure to pay in full the mortgage was not a full compliance of their obligation, they could not be faulted because their payments were not accepted by the SSS CA – reversed the decision of the RTC. ISSUE: Whether or not there can be a rescission of the contract between the petitioner and the respondent. RULING: NO. A careful reading of the pertinent provisions of the agreement readily shows that the principal object of the contract was the sale of the Barredo house and lot, for which the Leao Spouses gave a down payment of P100,000.00 as provided for in par. 1 of the contract, and thereafter ten (10) equal monthly installments amounting to another P100,000.00, as stipulated in par. 2 of the same agreement. The assumption of the mortgages by the Leao Spouses over the mortgaged property and their payment of amortizations are just collateral matters which are natural consequences of the sale of the said mortgaged property. Thus, par. 3 of the agreement provides that the Leao Spouses bind themselves to assume as they hereby assume beginning on July 1, 1987, the payment of the unpaid balance x x x x Hence, the Leao Spouses merely bound themselves to assume, which they actually did upon the signing of the agreement, the obligations of the Barredo Spouses with the SSS and Apex. Nowhere in the agreement was it stipulated that the sale was conditioned upon their full payment of the loans with SSS and Apex. When the language of the contract is clear, it requires no interpretation, and its terms should not be disturbed. The primary and elementary rule of construction of documents is that when the words or language thereof is clear and plain or readily understandable by any ordinary reader thereof, there is absolutely no room for interpretation or construction anymore and the literal meaning of its stipulations shall control. To include the full payment of the obligations with the SSS and Apex as a condition would be to unnecessarily stretch and put a new meaning to the provisions of the agreement. For, as a general rule, when the terms of an agreement have been reduced to writing, such written agreement is deemed to contain all the terms agreed upon and there can be, between the parties and their successors-in-interest, no evidence of such terms other than the contents of the written agreement. And, it is a familiar doctrine in obligations and contracts that the parties are bound by the stipulations, clauses, terms and conditions they have agreed to, which is the law between them, the only limitation being that these stipulations, clauses, terms and conditions are not contrary to law, morals, public order or public policy. Not being repugnant to any legal proscription, the agreement entered into by the parties must be respected and each is bound to fulfill what has been expressly stipulated therein. If the Barredo Spouses were really protective of their reputation and credit standing, they should have sought the consent, or at least notified the SSS and Apex of the assumption by the Leao Spouses of their indebtedness. Besides, in ordering rescission, the trial court should have likewise ordered the Barredo Spouses to return the P200,000.00 they received as purchase price plus interests. Art. 1385 of the Civil Code provides that [r]escission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest. The vendor is therefore obliged to return the purchase price paid to him by the buyer if the latter rescinds the sale. Thus, where a contract is rescinded, it is the duty of the court to require both parties to surrender that which they have respectively received and place each other as far as practicable in his original situation. 14. BPI VS CA, GR 116792, March 29, 2009 By: Evangelista -Javier, Judith A. DOCTRINE: Legal compensation operates even against the will of the interested parties and even without the consent of them FACTS: Private respondent Edvin F. Reyes has a joint AND/ OR Savings Account with his wife Sonia S. Reyes and also a joint account with his grandmother Emerita Fernandez at petitioner Bank of the Philippine Islands. He regularly deposited in his account with her grandmother the U.S. Treasury Warrants payable to the order of Emeteria M. Fernandez as her monthly pension. Emeteria died without the knowledge of the U.S. Treasury Department. She was still sent U.S. Treasury Warrant in the amount of P10,556.00. Private respondent closed the joint account with his grandmother and transferred the savings to his joint account with his wife. The U.S. Treasury Warrant was dishonored as it was discovered that Fernandez died three (3) days prior to its issuance. The U.S. Department of Treasury requested petitioner bank for a refund. For the first time petitioner bank came to know of the death of Fernandez. Petitioner bank debited the amount from his joint account with his wife based on the verbal instruction he gave over the phone. Private respondent demanded from petitioner bank restitution of the debited amount. He claimed that because of the debit, he failed to withdraw his money when he needed them. He then filed a suit for Damages against petitioners. The trial court dismissed the complaint of private respondent for lack of cause of action. Court of Appeals. reversed the impugned decision. ISSUE : Issue won legal compensation is proper. HELD: YES COMPENSATION IS PROPER Compensation shall take place when two persons, in their own right, are creditors and debtors of each other. Article 1290 of the Civil Code provides that when all the requisites mentioned in Article 1279 are present, compensation takes effect by operation of law, and extinguishes both debts to the concurrent amount, even though the creditors and debtors are not aware of the compensation. Legal compensation operates even against the will of the interested parties and even without the consent of them. Since this compensation takes place ipso jure, its effects arise on the very day on which all its requisites concur. When used as a defense, it retroacts to the date when its requisites are fulfilled. The elements of legal compensation are all present in the case at bar. The obligors bound principally are at the same time creditors of each other. Petitioner bank stands as a debtor of the private respondent, a depositor. At the same time, said bank is the creditor of the private respondent with respect to the dishonored U.S. Treasury Warrant which the latter illegally transferred to his joint account. The debts involved consist of a s u m o f m o n e y. T h e y a r e d u e , l i q u i d a t e d , a n d demandable. They are not claimed by a third person. 15. Spouses Go Cinco vs. CA, Ester Servacio and MTLC, G.R. No. 151903, October 9, 2009 By: Ferrer, Marrion Jade Doctrine: Payment means not only the delivery of money but also the performance, in any other manner, of an obligation. A debt shall not be understood to have been paid unless the thing or service in which the obligation consists have been completely delivered or tendered, as the case may be. If the creditor to whom tender of payment has been made refuses without just cause to accept it, the debtor shall be released from responsibility by the consignation of the thing or sum due. Facts: Manuel Go Cinco obtained a commercial loan of P700,000 from respondent Maasin Traders Lending Corp (MTLC) evidenced by a PN and secured by a REM over the Spouses Go Cinco’s land and 4-storey building located in Maasin, Southern Leyte. The terms of the PN are: (1) Principal = P700,000; (2) monthly interest rate of 3% or 36% per annum; (3) payable within 6 months, renewable for another 6 months. After 7 months, the outstanding obligation amounted to P1,071,256, including interest and penalties. To pay the loan, the Spouses applied for a loan with PNB Maasin Branch, and offered the same property previously mortgaged to MTLC as collateral. PNB approved the P1.3M loan but the release of the amount was conditioned on the cancellation of the mortgage in favour of MTLC. Manuel went to Ester Servacio (MTLC’s President) to inform the latter that there was money with the PNB for the payment of their loan with MTLC. Ester then went to PNB to verify the information, but later claimed that the bank’s officers informed her that Manuel had no pending loan application with them. Manuel then later executed a SPA authorizing Ester to collect the proceeds of his PNB loan. Ester then again went to PNB, this time, the bank’s officers confirmed the existence of the P1.3M loan, but required Ester to first sign a deed of release / cancellation of mortgage before they could release the proceeds of the loan to her. Outraged being not informed about using the same properties as collateral for the PNB loan, Ester refused to sign the deed and did not collect the P1.3M loan proceeds. As the MTLC loan was already due, Ester instituted foreclosure proceedings. To prevent this, Spouses Go Cinco filed an action for specific performance, damages, and preliminary injuction with RTC Maasin, alleging that foreclosure was no longer proper as there had already been settlement of Go Cinco’s obligation in favour of MTLC, and claimed that the assignment of the proceeds of the PNB loan amounted to payment, and that Ester’s refusal to sign the deed of release/cancellation of mortgage and to collect the proceeds of the PNB loan were completely unjustified and entitled them to the payment of damages.. Ester countered these by claiming that she had not been previously informed of the Spouses plan to obtain a loan from PNB and to use the loan proceeds to settle Manuel’s loan with MTLC. She claimed that she had no explicit agreement with Manuel authorizing her to apply the proceeds of the PNB loan to Manuel’s loan with MTLC; the SPA merely authorized her to collect the proceeds of the loan. Issue/s: WON Ester’s unjust refusal to accept payment amounted to the payment of the obligation. Ruling: NO. Unjust refusal cannot be equated to payment. While Ester’s refusal was unjustified and unreasonable, the Court did not agree with Go Cinco’s position that this refusal had the effect of payment that extinguished his obligation to MTLC. Under Article 1256, if the creditor to whom tender of payment has been made refuses without just cause to accept it, the debtor shall be released from responsibility by the consignation of the thing or sum due. In short, a refusal without just cause is not equivalent to payment; to have the effect of payment and the consequent extinguishment of the obligation to pay, the law requires the companion acts of tender of payment and consignation. Tender of payment, as defined in Far East Bank and Trust Company v. Diaz Realty, Inc., is the definitive act of offering the creditor what is due him or her, together with the demand that the creditor accept the same. When a creditor refuses the debtor’s tender of payment, the law allows the consignation of the thing or the sum due. Tender and consignation have the effect of payment, as by consignation, the thing due is deposited and placed at the disposal of the judicial authorities for the creditor to collect. A sad twist in this case for Manuel was that he could not avail of consignation to extinguish his obligation to MTLC, as PNB would not release the proceeds of the loan unless and until Ester had signed the deed of release/cancellation of mortgage, which she unjustly refused to do. Hence, to compel Ester to accept the loan proceeds and to prevent their mortgaged properties from being foreclosed, the spouses Go Cinco found it necessary to institute the present case for specific performance and damages. Under these circumstances, the Court held that while no completed tender of payment and consignation took place sufficient to constitute payment, the spouses Go Cinco duly established that they have legitimately secured a means of paying off their loan with MTLC; they were only prevented from doing so by the unjust refusal of Ester to accept the proceeds of the PNB loan through her refusal to execute the release of the mortgage on the properties mortgaged to MTLC. In other words, MTLC and Ester in fact prevented the spouses Go Cinco from the exercise of their right to secure payment of their loan. No reason exists under this legal situation why the Court cannot compel MTLC and Ester: (1) to release the mortgage to MTLC as a condition to the release of the proceeds of the PNB loan, upon PNB’s acknowledgment that the proceeds of the loan are ready and shall forthwith be released; and (2) to accept the proceeds, sufficient to cover the total amount of the loan to MTLC, as payment for Manuel’s loan with MTLC. The Court also found that under the circumstances, the spouses Go Cinco have undertaken, at the very least, the equivalent of a tender of payment that cannot but have legal effect. Since payment was available and was unjustifiably refused, justice and equity demand that the spouses Go Cinco be freed from the obligation to pay interest on the outstanding amount from the time the unjust refusal took place; they would not have been liable for any interest from the time tender of payment was made if the payment had only been accepted. Under Article 19 of the Civil Code, they should likewise be entitled to damages, as the unjust refusal was effectively an abusive act contrary to the duty to act with honesty and good faith in the exercise of rights and the fulfillment of duty. Hence, Ester’s unjust refusal to accept payment did not amounted to the payment of the obligation. 16. DALTON vs. FGR REALTY & DEV. CORP., GR 172577, Jan. 19, 2011 By: Ferreras, Marjorie Doctrine: Compliance with the requisites of a valid consignation is mandatory. Failure to comply strictly with any of the requisites will render the consignation void. Substantial compliance is not enough. Facts: Flora Dayrit owned a land in Cebu City. Petitioner Soledad Dalton and Sasam et al. leased portions of the said property. In June 1985, Dayrit sold the property to respondent FGR Realty and Development Corporation (FGR). In August 1985, Dayrit and FGR stopped accepting rental payments because they wanted to terminate the lease agreements with Dalton and Sasam, et al. In a complaint, Dalton and Sasam, et al. consigned the rental payments with the RTC. They failed to notify Dayrit and FGR about the consignation. In their motions Dayrit and FGR withdrew the rental payments, and reserved the right to question the validity of the consignation. Dayrit, FGR and Sasam, et al. entered into compromise agreements, while Dalton did not. RTC ordered Dalton to vacate and held that there was no valid consignation. The requisites of consignation are as follows: 1.The existence of a valid debt; 2. Valid prior tender, unless tender is excuse; 3. Prior notice of consignation (before deposit); 4. Actual consignation (deposit); 5. Subsequent notice of consignation. Nos. 3 and 5 are absent or were not complied with. It is very clear that there were no prior notices of consignation (before deposit) and subsequent notices of consignation (after deposit). CA affirmed. Consignation is made by depositing the proper amount to the judicial authority, before whom the tender of payment and the announcement of the consignation shall be proved. All interested parties are to be notified of the consignation. It had been consistently held that compliance with these requisites is mandatory. Issue: WON there was a valid consignation. Ruling: None. First, in withdrawing the Dayrit and FGR expressly reserved the validity of the consignation. It means acceptance of the money consigned is amounts consigned, right to question the when the creditors conditional and with reservations, he is not deemed to have waived the claims he reserved against his debtor. Second, compliance with the requisites of a valid consignation is mandatory. Failure to comply strictly with any of the requisites will render the consignation void. Substantial compliance is not enough. The giving of notice to the persons interested in the performance of the obligation is mandatory. Failure to notify the persons interested in the performance of the obligation will render the consignation void. The Civil Code Articles expressly and explicitly direct what must be essentially done in order that consignation shall be valid and effectual. 17. Land Bank of the Phil. vs. Alfredo Ong, G.R. 190755, Nov. 24, 2010 By: Roselle A. Gabriel Doctrine: Novation which consists in substituting a new debtor in the place of original one, may be made even without the knowledge or against the will of the latter, but not without the consent of the creditor. Facts: Spouses Sy secured a loan from Landbank Legazpi City in the amount of Php16M secured by 3 residential lots, 5 cargo trucks, and a warehouse. When the Spouses Sy could no longer pay the obligation, they executed a Deed of Sale with Assumption of Mortgage with Spouses Ong (thru respondent Alfredo). Alfredo went to the bank to inform the latter on the assumption of mortgage. The bank required Alfredo to pay part of the principal (Alfredo paid 750,000 2 weeks later) and to update due or accrued interests on the PN, as requirements for the approval of the Assumption of Mortgage. However, this did not materialize having been disapproved by a credit investigation report. The properties were later foreclosed. Alfredo filed a complaint for sum of money to recover the amount paid alleged for the approval of the Assumption of Mortgage. The bank contends that the amount paid was applied to the principal and accrued interests of the loan obligation of Spouses Sy with the bank and that a substitution of debtors (Spouses Ong) was made without its consent; thus, it was not bound to recognize the substitution under the rules on novation. Issue: Whether the contract between Spouses Ong and the bank is perfectly novated by the payment of Alfredo Ruling: There was no novation in the contract between Spouses Ong and the bank. Whether or not Alfredo has an interest in the obligation and payment was made with the knowledge or consent of spouses Sy, he may still pay the obligation for the reason that even before paid the amount of P750,000, the substitution of debtors was already perfected by and between Spouses Sy and Spouses Ong as evidenced by a Deed of Sale with Assumption of Mortgage. And since the substitution of debtors was made without the consent of the bank, a requirement which is indispensable in order to effect a novation on the obligation, it is therefore not bound to recognize the substitution of debtors. The bank did not intervene in the contract between Spouses Sy and Spouses One and did not expressly give its consent to the substitution. FACTS: On March 24, 1995, the Spouses Reyes executed a real estate mortgage on their property in Ilolio City in favor of respondent BPI-Family Savings Bank to secure a Php 15,000,000 loan of Transbuilder Resources and Development Corp. Transbuilders failed to pay the Php 15 million loan within the stipulated period of one year, the bank restructed the loan through a promissory note executed by Transbuilder in its favor. The petitioners learned about the restructuring of the loan and requested the cancellation of their REM and return of their certificate of title. The petitioners claim that the new loan novated the first loan agreement and such was made without their knowledge and request. BPI-FSB refused to cancel mortgage and instituted extrajudicial foreclosure on the properties of the petitioners after Transbuilders defaulted in their payment. ISSUE/S: Whether there was a novation of the mortgage loan contract between petitioners and BPI-FSB that would result in the extinguishment of petitioners liability to the bank. Article 1293 of the Civil Code states: Novation which consists in substituting a new debtor in the place of original one, may be made even without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new debtor gives him rights mentioned in Article 1236 and 1237. RULING: No, the new loan agreement is not considered as a novation of the first loan agreement. The obligation is not novated by an instrument that expressly recognizes the old, changes only the terms of payment, adds other obligations not incompatible with the old ones, or the new contract merely supplements the old one. 18.Spouses Reyes v. BPI (FSB), G.R. No. 149840/41, March 31, 2006 By: Javier, Elojra Carmiel There are four essential requisites in every novation 1) a previous valid obligation, 2) the agreement of all the parties to the new contract, 3) the extinguishment of the old contract; and 4) validity of the new contract. DOCTRINE: Novation is defined as the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which terminates the first, either by changing the object or principal conditions, or by substituting the person of the debtor, or subrogating a third person in the rights of the creditor The intention of the new agreement was to revive the old obligation after the original period expired and loan remained unpaid. BPI-FSB and Transbuilders only extended the repayment term of the loan from one year to twenty quarterly installments at 18% interest per annum. The novation of a contract cannot be presumed. In the absence of an express agreement, novation takes place only when the old and new obligations are incompatible on every point. 19. ODYSSEY PARK, INC. vs. HONORABLE COURT OF APPEALS and UNION BANK OF THE PHILIPPINES, G.R. No. 107992. October 8, 1997 By: Marianne M. Jalotjot Doctrine: It is a familiar doctrine in the law on contracts that the parties are bound by the stipulations, clauses, terms and conditions they have agreed to, the only limitation being that these stipulations, clauses, terms and conditions are not contrary to law, morals, public order or public policy. Not being repugnant to any legal proscription, the agreement entered into by the parties herein involved must be respected and held to be the law between them. Facts: Petitioner Odyssey Park Inc. (Buyer) entered into a Contract to Sell with Bancom Development Corporation (seller) which later transferred its right in favor of Defendant Union Bank all its rights and interest. The subject property involves a parcel of land located in Baguio City with a structure known as the Europa Clubhouse. The contract to sell stipulated that the contract price shall be paid in installments and in case that any portion of the purchase price falls due or in case of failure to comply with or violate any provision of the contract by Odyssey, Bancom (Union Bank) may at its absolute discretion cancel and rescind this Contract and declare the same as null and void. On December 1981, the President of Europa Condominium wrote Union Bank a letter questioning the propriety of the contract to sell, thus, Petitioner Odyssey wrote Bancom that it acknowledges the letter of Europa and in the meantime that there is a question on the propriety of the sale, they will stop/ withhold the payments of the amortization. On March 29, 1983, defendant-appellee Union Bank wrote plaintiff-appellant Odyssey Park, Inc., a letter demanding payment of the overdue account of P2,193,720.91, inclusive of interest and service charges, otherwise the contract to sell would be cancelled and rescinded. Thereafter, a proposal letter re: manner of settlement was made by the Petitioner Odyssey to Union Bank. However, Union Bank asked for more details and the memorandum of agreement that they supposed to enter failed to materialized. On January 6, 1984, defendant-appellee Union Bank, through counsel, wrote plaintiff-appellant Odyssey Park, Inc., a letter formally rescinding and/or cancelling the contract to sell. Then Union Bank filed a case with the RTC for the `Declaration of the Nullity of the Rescission of the Contract to Sell With Damages.’ RTC: granted the Petition CA: Affirmed Petitioner insists that rescission of the contract to sell by private respondent does not accord with the requirements of Republic Act (R.A.) No. 6552, also known as An Act to Protect Buyers of Real Estate on Installment Payments which requires a cancellation or rescission of the contract by means of a notarial act. A mere letter (dated 06 January 1984), or short of such a notarial act, according to petitioner, would be utterly deficient. Issue: Whether the contract to sell entered into between petitioner and private respondent have been validly rescinded Ruling: YES. The invocation of Republic Act No. 6552 is misplaced. This law, which normally applies to the sale or financing of real estate on installment payments, excludes industrial lots, commercial buildings, and sales to tenants under R.A. No. 3844. What must instead be held to rule in the case at bar is the agreement of the parties themselves. Section 5 of their contract to sell reads: Section 5: In the event Odyssey fails to pay any portion of the purchase price of the Property or the interest and service charge thereon as and when it falls due, or otherwise fails to comply with or violate any of the provisions of this Contract, Bancom may at its absolute discretion cancel and rescind this Contract and declare the same as null, void and no further force and effect by serving on Odyssey a written notice of cancellation and rescission thirty (30) days in advance. It is a familiar doctrine in the law on contracts that the parties are bound by the stipulations, clauses, terms and conditions they have agreed to, the only limitation being that these stipulations, clauses, terms and conditions are not contrary to law, morals, public order or public policy. Not being repugnant to any legal proscription, the agreement entered into by the parties herein involved must be respected and held to be the law between them. 20.SM Investments Corp. (SMIC) vs. Posadas, et. al., GR 200901, Dec. 7, 2015 By: Laqui, Xela Leona D. Doctrine: Contracts are perfected by mere consent and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. Facts: Estela Marfori Posadas, Maria Elena Posadas and Aida Macaraig Posadas are the owners of several parcels of land which is the subject of the dispute. SMIC, sent the Posadas a written offer for a joint venture for the development of the property dividing a 60/40 share over the property and SMC offering to pay P70,000,000.00 as goodwill money.The Posadas sent SMIC a written counterproposal asking for P80,000,000 instead. SMIC sent another letter containing its acceptance of the counter-offer of the Posadas. SMIC, in compliance with what it considered as a perfected contract for the joint venture, sent the Posadas four (4) drawings of the proposed mall and its location within the Subject Property. However, after receiving the drawings, the Posadas sent SMIC a letter informing it that they had received several other offers for the Subject Property, and demanding that SMIC better the said offers, before they submit their comments on the drawings. SMIC sent the Posadas a letter, reiterating the offer of 60/40 but now offering P140,000,000.00. SMIC, sent them a letter reminding them to respect the joint venture agreement for the development of the Subject Property. Appearing that the Posadas were not willing to honor the joint venture agreement, SMIC,a case for Specific Performance and Damages with Prayer for TRO and PI against The Posadas. The Trial Court favored SMIC. The CA favored the Posadas. Issue: Whether there was a perfected contract between SMIC and the Posadas? Ruling: Yes, There was a perfected contract of Joint Venture between the parties. It is basic in this jurisdiction that a contract is perfected by mere consent of the parties. Article 1315 of the Civil Code provides, Contracts are perfected by mere consent and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. Articles 1318 to 1320 of the Civil Code states the necessary requisites of a contract, i.e., 1.Consent of the contracting parties; 2.Object certain which is the subject matter of the contract; 3.Cause of the obligation which is established. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer. Acceptance made by letter or telegram does not bind the offeror except from the time it came to his knowledge. The contract, in such a case, is presumed to have been entered in the place where the offer was made. Here, The first letter embodies a complete offer on the part of SMIC in that it contained an object certain, which is the joint venture for the development of the property, and a specific cause and/or consideration therefor, which are the goodwill money in the amount of P70 Million, plus a 60/40 sharing, in favor of rthe Posadas of the development. The second letter in return embodies a complete counter-offer on the part of respondents in that they conveyed their acceptance of the joint venture subject only to the counter-proposal to increase the goodwill money from P70 Million to P80 Million. The Third Letter contains an unqualified, acceptance on the part of SMIC of the counter-proposal of The Posadas, again on the aspect of the goodwill money alone. Therefore, there is a perfected joint venture agreement between the parties for the development of the Subject Property. The first and second stage of the contract had been fulfilled. Negotiations took place when the parties made their exchange of correspondences first letter. The perfection of the contract came thereafter, when SMIC, through the second letter, accepted the counter-offer of respondents in the third letter. Therefore, There was a perfected contract of Joint Venture. 21. Boston Bank of the Phil. vs. Manalo, GR 158149, Feb. 9, 2006 By: Lesava, Anna Doctrine: For a perfected contract of sale or contract to sell to exist in law, there must be an agreement of the parties, not only on the price of the property sold, but also on the manner the price is to be paid by the vendee. A definite agreement as to the price is an essential element of a binding agreement to sell personal or real property because it seriously affects the rights and obligations of the parties. Price is an essential element in the formation of a binding and enforceable contract of sale. The fixing of the price can never be left to the decision of one of the contracting parties. But a price fixed by one of the contracting parties, if accepted by the other, gives rise to a perfected sale. It is not enough for the parties to agree on the price of the property. The parties must also agree on the manner of payment of the price of the property to give rise to a binding and enforceable contract of sale or contract to sell. This is so because the agreement as to the manner of payment goes into the price, such that a disagreement on the manner of payment is tantamount to a failure to agree on the price. Facts: Xavierville Estate, Inc. (XEI) owned a property in QC which it converted into residential lots later known as Xavierville Estate Subdivision. XEI, through its Gen. Mgr. Antonio Ramos, as vendor, executed with Oversees Bank of Manila (OBM) as vendee, a “Deed of Sale of Real Estate” over some residential lots in the subdivision including Lot 1 and and Lot 2 of Block 2. XEI President, Emerito Ramos, Jr., contracted the services of Engr. Carlos Manalo, Jr. who was in the business of drilling deep water wells and installing pumps under the business name Hurricane Commercial Inc. Manalo, Jr. proposed to purchase a lot in Xaviervilled subdivision and offered as part of downpayment, Php 34,887.66 an amount owed by Emerito Ramos, Jr. to him. XEI, through Emerito, agreed. Carlos informed XEI that he and his wife had chosen Lots 1 and 2 of Block 2. In a letter dated August 22, 1972 to Perla Manalo, Ramos confirmed the reservation of the lots. He also pegged the price of the lots at ₱200.00 per square meter, or a total of ₱348,060.00, with a 20% down payment of the purchase price amounting to ₱69,612.00 less the ₱34,887.66 owing from Ramos, payable on or before December 31, 1972; the corresponding Contract of Conditional Sale would then be signed on or before the same date, but if the selling operations of XEI resumed after December 31, 1972, the balance of the downpayment would fall due then, and the spouses would sign the aforesaid contract within five (5) days from receipt of the notice of resumption of such selling operations. It was also stated in the letter that, in the meantime, the spouses may introduce improvements thereon subject to the rules and regulations imposed by XEI in the subdivision. Perla Manalo conformed to the letter agreement. Manalo Sps. failed to pay the balance of the downpayment on the lots because Emerito failed to prepare a contract of conditional sale and transmit the same to Manalo for their signature. Subsequently, XEI turned over its selling operations to OBM, including the receivables for lots already contracted and those yet to be sold. On Dec. 5, 1979, the Register of Deeds issues TCT over Lot 1 and Lot 2, Block 2 in favor of OBM. Subsequently, OBM sold Xavierville Estate to Commercial Bank of Manila (CBM). A disagreement ensued between CBM and Sps. Manalo regarding the putting up of a business sign inside the subdivision. CBM later filed a complaint for unlawful detainer against Sps. Manalo claiming that the spouses had been unlawfully occupying the property without its consent and that despite its demands, they refused to vacate the property. Sps. Manalo alleged that they, as vendors, and XEI, as vendee, had a contract of sale over the lots which had not yet been rescinded. CBM was later renamed Boston Bank of the Philippines. RTC: rendered decision in favor of Sps. Manalo CA: Sustained ruling of RTC. In Boston Bank’s MR with the CA it claimed that there was no perfected contract to sell the two lots, as there was no agreement between XEI and the respondents on the manner of payment as well as the other terms and conditions of the sale. Issue: WON there was a perfected contract to sell between XEI and Sps. Manalo? Ruling: NO, the contract to sell was not perfected. The terms of payment had yet to be agreed upon when the parties signed the contract of conditional sale. There is no evidence on record to prove that XEI or OBM and the respondents had agreed, after December 31, 1972, on the terms of payment of the balance of the purchase price of the property and the other substantial terms and conditions relative to the sale. So long as an essential element entering into the proposed obligation of either of the parties remains to be determined by an agreement which they are to make, the contract is incomplete and unenforceable. The reason is that such a contract is lacking in the necessary qualities of definiteness, certainty and mutuality. Even under Art. 1469, NCC where the price of property sold may be considered certain if it be so with reference to another thing certain, the August 22, 1972 letter agreement of the parties and find no direct or implied reference to the manner and schedule of payment of the balance of the purchase price of the lots covered by the deeds of conditional sale executed by XEI and that of the other lot buyers as basis for or mode of determination of the schedule of the payment by the respondents of the ₱278,448.00. The Respondent Manalos failed and refused to pay the balance of the downpayment and of the purchase price of the property amounting to ₱278,448.00 despite notice to them of the resumption by XEI of its selling operations. The Respondent Manalos enjoyed possession of the property without paying a centavo. On the other hand, XEI and OBM failed and refused to transmit a contract of conditional sale to the Respondents. The respondents could have at least consigned the balance of the downpayment after notice of the resumption of the selling operations of XEI and filed an action to compel XEI or OBM to transmit to them the said contract; however, they failed to do so. As a consequence, respondents and XEI (or OBM for that matter) failed to forge a perfected contract to sell the two lots; hence, respondents have no cause of action for specific performance against petitioner. 22. Jason and Aida Yason vs. Faustino Arciaga, GR 145017, Jan. 28, 2005 By: Luzano, Gabriel Ray L. Doctrine: A person is not incapacitated to enter into a contract merely because of advanced years or by reason of physical infirmities, unless such age and infirmities impair his mental faculties to the extent that he is unable to properly, intelligently, and fairly understand the provisions of the contract. The signature may be made by a person’s cross or mark even though he is able to read and write and is valid if the deed is in all other respects a valid one. Facts: Spouses Emilio and Claudia Arciaga were the owners of Lot 303-B in Barangay Putatan, Muntinlupa. They executed a Deed of Conditional Sale where they sold it for 265,000 to the Spouses Dr. Jose and Aida Yason. Deed of Absolute Sale was executed on Apr. 19, 1983 which is also the same day that Claudia died. The petitioners then had the Deed of Absolute Sale registered in the Registry of Deeds of Makati City through Jesus Medina who they also gave 15,000 for capital gains tax. Without their knowledge, Medina falsified the Deed of Absolute Sale and had it registered for a lower price of 25,000. Arciaga’s children learned of the falsified document of sale and now seeks to annul the land titles connected to it. They claim that at the time the Deed of Absolute Sale was executed, Claudia did not really give her consent because she was already seriously ill, weak, and unable to talk. The RTC dismissed the complaint. The CA initially affirmed the RTC but reversed in the Motion for Reconsideration. The CA made the basis the fact that only a thumbmark and not a signature of Claudia was affixed on the supposed deeds, when in fact she could definitely read and write. Issue: Whether or not Claudia Arciaga voluntarily affixed her thumbmark on the documents of sale. Ruling: Yes. Claudia Arciaga voluntarily affixed her thumbmark on the documents of sale. While it is true that she was sick and bedridden, the respondents failed to prove that she could no longer understand the terms of the contract and that she did not affix her thumbmark thereon. Unfortunately, they did not present the doctor or nurse who tended to her to confirm that indeed she was mentally and physically incapable of entering into a contract. Mere weakness of mind alone, without imposition of fraud, is not a ground for vacating a contract. Only if there is unfairness in the transaction, such as gross inadequacy of consideration, the low degree of intellectual capacity of the party, may be taken into consideration for the purpose of showing such fraud as will afford a ground for annulling a contract. A person is not incapacitated to enter into a contract merely because of advanced years or by reason of physical infirmities, unless such age and infirmities impair his mental faculties to the extent that he is unable to properly, intelligently, and fairly understand the provisions of the contract. The signature may be made by a person’s cross or mark even though he is able to read and write and is valid if the deed is in all other respects a valid one. 23. Mandarin Villa vs. CA, GR 119850, June 20, 1996 By: Manguera, Triccie Coleen A. DOCTRINE: The cardholder’s offer to pay by means of his credit card constitutes not only an acceptance of the said stipulation but also an explicit communication of his acceptance to the obligor. any responsibility for damages and reduced moral and exemplary damages FACTS: Private respondent, Clodualdo de Jesus, a practicing lawyer and businessman, hosted a dinner for his friends at the petitioner's restaurant, the Mandarin Villa Seafoods Village, Greenhills, Mandaluyong City. After dinner, the waiter handed to him the bill in the amount of P2,658.50 to which private respondent offered credit card (BANKARD) as payment. This was accepted by the waiter who immediately proceeded to the restaurant's cashier for card verification but, few minutes later, the waiter returned and audibly informed private respondent that his credit card had expired. HELD: YES. The Court notes that Mandarin Villa Seafood Village is affiliated with BANKARD. In fact, an "Agreement" entered into by petitioner and BANKARD dated June 23, 1989, provides inter alia: Private respondent remonstrated that said credit card had yet to expire on September 1990, as embossed on its face, thus, he and two of his guests approached the restaurant's cashier who again passed the credit card over the verification computer. The same information was produced, i.e., CARD EXPIRED. They returned to their table and at this juncture, Professor Lirag, another guest, uttered the following remarks: "Clody [referring to Clodualdo de Jesus], may problema ba? Baka kailangang maghugas na kami ng pinggan?" Thereupon, private respondent left the restaurant and got his BPI Express Credit Card from his car and offered it to pay their bill. This was accepted and honored by the cashier after verification. This incident triggered the filing of a suit for damages by private respondent. RTC: Directed the petitioner and BANKARD to pay jointly and severally the private respondent: (a) moral damages in the amount of P250,000.00; (b) exemplary damages in the amount of P100,000.00; and (c) attorney's fees and litigation expenses in the amount of P50,000.00. CA: Found the appellant MANDARIN solely responsible for damages in favor of appellee; absolved appellant BANKARD of ISSUE: Whether or not petitioner is bound to accept payment by means of credit card. "The MERCHANT shall honor validly issued PCCCI credit cards presented by their corresponding holders in the purchase of goods and/or services supplied by it provided that the card expiration date has not elapsed and the card number does not appear on the latest cancellation bulletin of lost, suspended and cancelled PCCCI credit cards and, no signs of tampering, alterations or irregularities appear on the face of the credit card." While private respondent may not be a party to the said agreement, the above-quoted stipulation conferred a favor upon the private respondent, a holder of credit card validly issued by BANKARD. This stipulation is a stipulation pour autri and under Article 1311 of the Civil Code private respondent may demand its fulfillment provided he communicated his acceptance to the petitioner before its revocation. In this case, private respondent's offer to pay by means of his BANKARD credit card constitutes not only an acceptance of the said stipulation but also an explicit communication of his acceptance to the obligor. In addition, the record shows that petitioner posted a logo inside Mandarin Villa Seafood Village stating that "Bankard is accepted here." This representation is conclusive upon the petitioner which it cannot deny or disprove as against the private respondent, the party relying thereon. Petitioner, therefore, cannot disclaim its obligation to accept private respondent's BANKARD credit card without violating the equitable principle of estoppels. 24. BPI Express Card Corp., v. Armovit, G.R. No. 163654, Oct. 8, 2014. By. Morales, Carol Ann S. DOCTRINE: The relationship between the credit card issuer and the credit card holder is a contractual one that is governed by the terms and conditions found in the card membership agreement. Such terms and conditions constitute the law between the parties. In case of their breach, moral damages may be recovered where the defendant is shown to have acted fraudulently or in bad faith. FACTS: Armovit, then a depositor of the Bank of the Philippine Islands at its Cubao Branch, was issued by BPI Express Credit a pre-approved BPI Express Credit Card (credit card) in 1989 with a credit limit of ₱20,000.00 that was to expire at the end of March 1993. She treated her friends from Hong Kong to lunch in Marios restaurant, and as a host, she handed to the waiter her credit card. It was returned by the waiter and inform her that the card was cancelled upon verification with BPI and it was not honored. Relying to the credit card, she had no enough cash and felt embarrassed when her friend shared on the bill. Armovit called BPI Express Credit to verify the status of her credit card. She learned that her credit card had been summarily cancelled for failure to pay her outstanding obligations. She denied that she defaulted paying her obligation, also, she demanded compensation for the shame and embarrassment and humiliation she suffered. BPI Express Credit claimed that it had sent Armovit a telegraphic message on March 19, 1992 requesting her to pay her arrears for three consecutive months, and that she did not comply with the request, causing it to temporarily suspend her credit card effective March 31, 1992. She failed to submit the required application form in order to reactivate her credit card privileges. Armovit received a telegraphic message from BPI Express Credit apologizing for its error. Armovit sued BPI Express Credit for damages in the RTC, insisting that she had been a credit card holder in good standing, and that she did not have any unpaid bills at the time of the incident. ISSUE: Whether or not the CA erred in sustaining the award of moral and exemplary damages in favor of Armovit. RULING: NO. The relationship between the credit card issuer and the credit card holder is a contractual one that is governed by the terms and conditions found in the card membership agreement. Such terms and conditions constitute the law between the parties. In case of their breach, moral damages may be recovered where the defendant is shown to have acted fraudulently or in bad faith. Considering that the terms and conditions nowhere stated that the card holder must submit the new application form in order to reactivate her credit card, to allow BPI Express Credit to impose the duty to submit the new application form in order to enable Armovit to reactivate the credit card would contravene the Parol Evidence Rule. Indeed, there was no agreement between the parties to add the submission of the new application form as the means to reactivate the credit card. When she did not promptly settle her outstanding balance, BPI Express Credit sent a message on March 19, 1992 demanding payment with the warning that her failure to pay would force it to temporarily suspend her credit card effective March 31, 1992. The letter of BPI Express Credit dated April 8, 1992 did not clearly and categorically inform Armovit that the submission of the new application form was the pre-condition for the reactivation of her credit card. Bereft of the clear basis to continue with the suspension of the credit card privileges of Armovit, BPI Express Credit acted in wanton disregard of its contractual obligations with her. We concur with the apt observation by the CA that BPI Express Credits negligence was even confirmed by the telegraphic message it had addressed and sent to Armovit apologizing for the inconvenience caused in inadvertently including her credit card in the caution list. 25. ECE Realty & Dev. Inc. v. Mandap, G.R. 196182, Sept. 1, 2014 By: Morales, Edilyn T. Doctrine: In order to constitute fraud that provides basis to annul contracts it must fulfill two conditions: first, it must be dolo causante, and second, it must be proven by clear and convincing evidence and not merely by preponderance thereof. Facts: Petitioner is a corporation engaged in the building and development of condominium units. Sometime in 1995, it started the construction of a condominium project called Central Park Condominium Building located in Pasay City. However, printed advertisements were made indicating that the said project was to be built in Makati City. Respondent agreed to buy a unit by paying a reservation fee and thereafter, down payment and monthly installments. The parties executed a Contract to Sell where it was indicated that the condominium project is in Pasay City. More than two years thereafter the execution of the Contract, respondent, thru counsel, wrote a letter to petitioner demanding the return of the payments she made on the ground that she subsequently discovered that the condominium project was being built in Pasay City, and not in Makati City as indicated in its printed advertisements. Respondent then filed a complaint with the ENCRFO of the HLURB seeking the annulment of her contract with petitioner. However, the ENCRFO dismissed the complaint. This was affirmed by the HLURB Board of Commissioners and later by the Office of the President upon appeal. Upon appeal, CA reversed and held that petitioner employed fraud and machinations to induce respondent to enter into a contract with it. Issue: Whether there was fraud in the execution of the subject contract to sell and declaring the same annulled Ruling: NO. First, the fraud must be dolo causante or it must be fraud in obtaining the consent of the party. This is referred to as causal fraud. The deceit must be serious. The fraud is serious when it is sufficient to impress, or to lead an ordinarily prudent person into error; that which cannot deceive a prudent person cannot be a ground for nullity. The circumstances of each case should be considered, taking into account the personal conditions of the victim. Second, the fraud must be proven by clear and convincing evidence and not merely by preponderance thereof. In the present case, the Supreme Court finds that petitioner is guilty of false representation of a fact. This is evidenced by its printed advertisements indicating that its subject condominium project is located in Makati City when, in fact, it is in Pasay City. However, insofar as the present case is concerned, the Court agrees that the misrepresentation made by petitioner in its advertisements does not constitute causal fraud which would have been a valid basis in annulling the Contract to Sell between petitioner and respondent. Being a notarized document, it had in its favor the presumption of regularity, and to overcome the same, there must be evidence that is clear, convincing and more than merely preponderant; otherwise, the document should be upheld. Mandap failed to overcome this presumption. In any case, even assuming that petitioner’s misrepresentation consists of fraud which could be a ground for annulling their Contract to Sell, respondent's act of affixing her signature to the said Contract, after having acquired knowledge of the property's actual location, can be construed as an implied ratification thereof. 26. The Insular Life Assurance Company Ltd. vs. Asset Builders Corp. By: Morales, I Doctrine: It is elementary that, being consensual, a contract is perfected by mere consent. From the moment of a meeting of the offer and the acceptance upon the object and the cause that would constitute the contract, consent arises. However, the offer must be certain and the acceptance seasonable and absolute; if qualified,[ the acceptance would merely constitute a counter-offer. consummation, wherein they fulfill or perform the terms agreed upon in the contract, culminating in the extinguishment thereof. Facts: Petitioner invited companies/corporations engaged in the building construction business to participate in the bidding of [petitioners] proposed Insular Life building in Lucena City. Respondent with 4 other bidders; to which respondent bound and obliged itself to enter into a Contract with the petitioner within 10 days from notice of the award, with good and sufficient securities for the faithful compliance thereof. On February 24, 1994, a conference was held by and among the representatives of the parties. Petitioner proposed that Respondent adjust its bid from P12,961,845.54 to P13,000,000.00 to accommodate the wage increase brought about by Wage Order No. 03. However, its representatives were noncommittal, declaring that they had to report to the management the proposal for its consideration and approval. Subsequently, it agreed to the readjustment of the amount of its bid as proposed by the Petitioner. However, Respondent did not affix its conformity to any Notice of Award, much less commence its construction of the project. Neither did it execute any Construction Agreement. By way of riposte, it sent a letter averring that: (a) it never received any written Notice of Award and] (b) since its bid offer had a lifetime of 60 days from November 9, 1993 or until January 8, 1993, its offer was automatically withdrawn after said date, since there is no request for extension thereof. In the case at bar, the parties did not get past the negotiation stage. The events that transpired between them were indeed initiated by a formal offer, but this policitacin was merely an imperfect promise that could not be considered a binding commitment. At any time, either of the prospective contracting parties may stop the negotiation and withdraw the offer. Issue: WON there exists a valid contract for the construction of the building project between IL and ABC? Ruling: No. It is to be noted that there are three distinct stages of a contract -- its preparation or negotiation, its perfection, and finally, its consummation. Negotiation begins when the prospective contracting parties manifest their interest in the contract and ends at the moment of their agreement. The perfection or birth of the contract occurs when they agree upon the essential elements thereof. The last stage is its In the present case, in fact, there was only an offer and a counteroffer that did not sum up to any final arrangement containing the elements of a contract. Clearly, no meeting of minds was established. First, only after the bid bond had lapsed were post-qualification proceedings, inspections, and credit investigations conducted. Second, the inter-office memoranda issued by petitioner, as well as other memoranda between it and its own project manager, were simply documents to which respondent was not privy. Third, petitioner proposed a counteroffer to adjust respondents bid to accommodate the wage increase of December 3, 1993. 27. FEDERICO SERRA vs. COURT OF APPEALS G.R. No. 103338. January 4, 1994 Doctrine: A contract of adhesion is one wherein a party, usually a corporation, prepares the stipulations in the contract, while the other party merely affixes his signature or his "adhesion" thereto. These types of contracts are as binding as ordinary contracts. Because in reality, the party who adheres to the contract is free to reject it entirely. Although, the SC will not hesitate to rule out blind adherence to terms where facts and circumstances will show that it is basically one-sided. Facts: Serra is the owner of a 374 square meter parcel of land located at Quezon St., Masbate, Masbate. In 1975, RCBC, in its desire to put up a branch in Masbate, Masbate, negotiated with Serra for the purchase of the then unregistered property. On May 20, 1975, a contract of LEASE WITH OPTION TO BUY was instead forged by the parties. The contract provides that: RCBC shall occupy the land for 25 years from June 1, 1975 to June 1, 2000. RCBC shall have the option to purchase said parcel of land within a period of 10 years from the date of the signing of the contract at a price not greater than P210.00 per square meter. For this purpose, Serra should, within such ten-year period, register said parcel of land under the TORRENS SYSTEM and all expenses appurtenant thereto shall be for his sole account. If, for any reason, the land is not registered under the TORRENS SYSTEM within the ten-year period, RCBC shall have the right, upon termination of the lease to be paid by Serra the market value of the building and improvements constructed on the land. - RCBC shall pay Serra a monthly rental of P700.00. - RCBC is authorized to construct at its sole expense a building and such other improvements on the land, which it may need in the pursuance of its business and/ or operations; but if RCBC shall fail to exercise its option in case the parcel of land is registered under the TORRENS SYSTEM within the ten-year period mentioned therein, said building and/or improvements, shall become the property of Serra after the expiration of the 25-year lease period without right of reimbursement on the part of the RCBC. Pursuant to said contract, a building and other improvements were constructed on the land which housed the branch office of RCBC in Masbate, Masbate. Within three years from the signing of the contract, Serra complied with his part of the agreement by having the property registered and placed under the TORRENS SYSTEM. Serra alleges that as soon as he had the property registered, he kept on pursuing the manager of the branch to effect the sale of the lot as per their agreement. It was not until September 4, 1984, however, when the RCBC decided to exercise its option and informed Serra, through a letter, of its intention to buy the property at the agreed price of not greater than P210 per square meter or a total of P78,430. But much to the surprise of RCBC, Serra replied that he is no longer selling the property. A complaint for specific performance and damages was filed by RCBC against Serra. Serra contended that: (1) RCBC took undue advantage on him when it set in lopsided terms on the contract which was prepared & drawn by RCBC,(2) the option was not supported by any consideration distinct from the price and hence not binding upon him, (3) as a condition for the validity and/or efficacy of the option, it should have been exercised within the reasonable time after the registration of the land under the Torrens System and its delayed action on the option has forfeited whatever its claim to the same, and (4) extraordinary inflation supervened resulting in the unusual decrease in the purchasing power of the currency rendering the terms of the contract unenforceable, inequitable and to the undue enrichment of RCBC. He also alleges that the rental of P700 has become unrealistic and unreasonable, that justice and equity will require its adjustment. Initially, the trial court dismissed the complaint. Although it found the contract to be valid, the court ruled that the option to buy is unenforceable because it lacked a consideration distinct from the price and that RCBC did not exercise its option within reasonable time. But upon motion for reconsideration of RCBC, the court reversed its decision and ordered Serra to transfer the ownership of the property to RCBC. The Court of Appeals affirmed the trial court’s decision and held that: the contract is valid; the option is supported by a distinct and separate consideration as embodied in the agreement; and there is no basis in granting an adjustment in rental. Issues & Ruling: (1) Is the contract of lease with option to buy among the parties is valid? Or is the disputed contract a contract of adhesion? (2) Whether there was no consideration to support the option, distinct from the price, hence the option cannot be exercised. (3) Whether extraordinary inflation supervened resulting in the unusual decrease in the purchasing power of the currency making the rental of P700 unrealistic and unreasonable, that justice and equity will require its adjustment. 1. There is no dispute that the contract is valid and existing between the parties, as found by both the trial court and the appellate court. A contract of adhesion is one wherein a party, usually a corporation, prepares the stipulations in the contract, while the other party merely affixes his signature or his "adhesion" thereto. These types of contracts are as binding as ordinary contracts. Because in reality, the party who adheres to the contract is free to reject it entirely. Although, the SC will not hesitate to rule out blind adherence to terms where facts and circumstances will show that it is basically one-sided. The SC did not find the situation in the present case to be inequitable. Serra is a highly educated man, who, at the time of the trial was already a CPA-Lawyer, and when he entered into the contract, was already a CPA, holding a respectable position with the Metropolitan Manila Commission. It is evident that a man of his stature should have been more cautious in transactions he enters into, particularly where it concerns valuable properties. 2. Jurisprudence has taught us that an optional contract is a privilege existing only in one party — the buyer. For a separate consideration paid, he is given the right to decide to purchase or not, a certain merchandise or property, at any time within the agreed period, at a fixed price. This being his prerogative, he may not be compelled to exercise the option to buy before the time expires. On the other hand, what may be regarded as a consideration separate from the price is discussed in the case of Vda. de Quirino v. Palarca wherein the facts are almost on all fours with the case at bar. The said case also involved a lease contract with option to buy where we had occasion to say that "the consideration for the lessor's obligation to sell the leased premises to the lessee, should he choose to exercise his option to purchase the same, is the obligation of the lessee to sell to the lessor the building and/or improvements constructed and/or made by the former, if he fails to exercise his option to buy said premises." In the present case, the consideration is even more onerous on the part of the lessee since it entails transferring of the building and/or improvements on the property to petitioner, should respondent bank fail to exercise its option within the period stipulated. 3. There is no basis, legal or factual, in adjusting the amount of the rent. The contract is the law between the parties and if there is indeed reason to adjust the rent, the parties could by themselves negotiate for the amendment of the contract. Neither could we consider the decline of the purchasing power of the Philippine peso from 1983 to the time of the commencement of the present case in 1985, to be so great as to result in an extraordinary inflation. Extraordinary inflation exists when there is an unimaginable increase or decrease of the purchasing power of the Philippine currency, or fluctuation in the value of pesos manifestly beyond the contemplation of the parties at the time of the establishment of the obligation. Premises considered, the SC finds that the contract of "LEASE WITH OPTION TO BUY" between petitioner and respondent bank is valid, effective and enforceable, the price being certain and that there was consideration distinct from the price to support the option given to the lessee. WHEREFORE, the petition was DISMISSED, and the decision of the appellate court was AFFIRMED. 28. Spouses Santiago vs. CA, GR 103959 DOCTRINE:The failure of petitioners to take exclusive possession of the property allegedly sold to them, or in the alternative, to collect rentals from the alleged vendee Paula Arcega, is contrary to the principle of ownership and a clear badge of simulation that renders the whole transaction void and without force and effect. FACTS: Paula Arcega was the registered owner of the subject parcel of land. Her residential house stood there until 1970 when it was destroyed by a strong typhoon. Paula Arcega executed what purported to be a deed of conditional sale over the land in favor of Josefina Arcega and the spouses Regalado Santiago and Rosita Palabyab, petitioners, for P20,000.00. The vendees were supposed to pay P7,000.00 as down payment. Arcega was supposed to execute and deliver to them the absolute deed of sale upon full payment of the unpaid balance of the purchase price. Supposedly upon payment of the remaining balance, Paula Arcega executed a deed of absolute sale of the same parcel of land in favor of petitioners and a new TCT was issued in the petitioners’ name. Paula Arcega died single and without issue, leaving as heirs her two brothers, Narciso Arcega and private respondent Quirico Arcega. Before Paula Arcega died, a 4-bedroom house was built over the parcel of land and was occupied by Arcega until her death despite the execution of the alleged deed of absolute sale. The three other bedrooms, smaller than the master's bedroom, were occupied by the petitioners who were the supposed vendees in the sale. Private respondent Quirico Arcega, as heir of his deceased sister, sought to declare null and void the deed of sale executed by his sister during her lifetime in favor of the petitioners on the ground that said deed was fictitious since the P20,000.00 was not actually paid by the vendees to his sister. Petitioner spouses averred that private respondent's cause of action was already barred by the statute of limitations considering that the disputed deed of absolute sale was executed in their favor on more than fourteen (14) years from the time the cause of action accrued (June 1971 – October 1985). Petitioners also deny that the sale was fictitious. They maintain that the purchase price was actually paid to Paula Arcega and that said amount was spent by the deceased in the construction of her three-door apartment on the parcel of land in question. RTC declared the title null and void. CA agreed with RTC and found that the Arcega siblings tried to reconstruct the house that was destroyed by the typhoon and sold properties which they inherited in order to fund the construction. In order to augment the cost in constructing the house, they planned to mortgage the subject lot to SSS. Only the Petitioner Spouses were members of SSS. Since the SSS requires the collateral to be in the name of the mortgagors, Paula Arcega executed a simulated deed of sale (Kasulatan ng Bilihang Tuluyan ng Lupa) for P20,000 in favor of the defendants and the same was notarized by Atty. Luis Cuvin who emphatically claimed that no money was involved in the transaction as the parties have other agreement. ISSUE: Whether the Lower Courts were correct in voiding the TCT and Absolute Deed of Sale HELD: YES. While petitioners were able to occupy the property in question, they were relegated to a small bedroom without bath and toilet, while Paula Arcega remained virtually in full possession of the completed house and lot using the big master's bedroom with bath and toilet up to the time of her death. If, indeed, the transaction entered into by the petitioner's and the late Paula Arcega on July 18, 1971 was a veritable deed of absolute sale, as it was purported to be, then Ms. Arcega had no business whatsoever remaining in the property and, worse, to still occupy the big master's bedroom with all its amenities until her death on April 10, 1985. Definitely, any legitimate vendee of real property who paid for the property with good money wil not accede to an arrangement whereby the vendor continues occupying the most favored room in the house while he or she, as new owner, endures the disgrace and absurdity of having to sleep in a small bedroom without bath and toilet as if he or she is a guest or a tenant in the house. In any case, if petitioners really stood as legitimate owners of the property, they would have collected rentals from Paula Arcega for the use and occupation of the master's bedroom as she would then be a mere lessee of the property in question. However, not a single piece of evidence was presented to show that this was the case. All told, the failure of petitioners to take exclusive possession of the property allegedly sold to them, or in the alternative, to collect rentals from the alleged vendee Paula Arcega, is contrary to the principle of ownership and a clear badge of simulation that renders the whole transaction void and without force and effect. To be considered with great significance is the fact that Atty. Luis Cuvin who notarized the deed disclaimed the truthfulness of the document when he testified that "NO MONEY WAS INVOLVED IN THE TRANSACTION. The fact that petitioners were able to secure a title in their names, TCT No. 148989, did not operate to vest upon petitioners ownership over Paula Arcega's property. That act has never been recognized as a mode of acquiring ownership. As a matter of fact, even the original registration of immovable property does not vest title thereto. The Torrens system does not create or vest title. It only confirms and records title already existing and vested. It does not protect a usurper from the true owner. It cannot be a shield for the commission of fraud. It does not permit one to enrich himself at the expense of another. Where one does not have any rightful claim over a real property, the Torrens system of registration can confirm or record nothing. 29.Reyes vs. Asuncion, GR 196083, Nov. 11, 2015 By: Regalado, Mica FACTS: Milagros Reyes (Milagros) claims that she owns a land in Tarlac (more or less 3.5ha), which is also a sugarcane plantation. She hired Felix Asuncion (Felix) as the caretaker of the subject land. The Bases Conversion and Development Authority launched a resettlement program for the victims of Mt. Pinatubo eruption and the subject lot was among those considered as possible resettlement sites. In order to prevent the conversion of the property, Milagros and Felix executed a contract (“Paglilipat ng Karapatan sa Lupa”) transferring Milagros’ rights over the subject land to Felix. Milagros claims to have remained the absolute owner and possessor of the subject lot and presently occupies the same. She filed a complaint against Felix for the declaration of nullity of the subject contract. The RTC ruled that there was no legal basis to nullify the contract. The CA dismissed Milagros’ appeal, and denied her motion for reconsideration. ISSUE: Whether the contract Milagros and Felix executed was simulated – NO RULING: NO. Milagros gave no other evidence to support her allegations except for her self-serving averments. There is insufficiency of evidence to prove that there was indeed a simulation of contract. The burden of proving the alleged simulation of a contract falls on those who impugn its regularity and validity. A failure to discharge this duty will result in the upholding of the contract. The primary consideration in determining whether a contract is simulated is the intention of the parties as manifested by the express terms of the agreement itself, as well as the contemporaneous and subsequent actions of the parties. The most striking index of simulation is not the filial relationship between the purported seller and buyer, but the complete absence of any attempt in any manner on the part of the latter to assert rights of dominion over the disputed property. Discussion re: Absolute Simulation vs. Relative Simulation In absolute simulation, there is a colorable contract but it has no substance as the parties have no intention to be bound by it. The main characteristic of an absolute simulation is that the apparent contract is not really desired or intended to produce legal effect or in any way alter the juridical situation of the parties. As a result, an absolutely simulated or fictitious contract is void, and the parties may recover from each other what they may have given under the contract. However, if the parties state a false cause in the contract to conceal their real agreement, the contract is relatively simulated and the parties are still bound by their real agreement. Hence, where the essential requisites of a contract are present and the simulation refers only to the content or terms of the contract, the agreement is absolutely binding and enforceable between the parties and their successors-in-interest. 30. Lim vs. Court of Appeals, GR 196083, Feb. 28, 1996 By: Samantha Reyes Doctrine: A contract of agency to sell on commission basis does not belong to any of these three categories, hence it is valid and enforceable in whatever form it may be entered into. Facts: Rosa Lim who had come from Cebu received from Suarez: (1) 3.35 carat diamond ring worth P169,000.00 and (2) bracelet worth P170,000.00, to be sold on commission basis. The agreement was reflected in a receipt (stating that Lim received the jewelry, that she will sell in cash within x days, and to keep commissions which is the over-value of the price, or to return it if unsold). Lim returned the bracelet to Vicky Suarez, but failed to return the diamond ring or to turn over the proceeds thereof if sold. As a result, Suarez made a demand letter and verbal demands, and subsequently filed a complaint for estafa. Issue: Was the transaction between Lim and Suarez as evidenced by the receipt— a contract of agency to sell on commission basis or a sale on credit? Ruling: Contract of agency. Rosa Lims signature indeed appears on the upper portion of the receipt immediately below the description of the items taken. We find that this fact does not have the effect of altering the terms of the transaction from a contract of agency to sell on commission basis to a contract of sale. Neither does it indicate absence or vitiation of consent thereto on the part of Rosa Lim which would make the contract void or voidable. The moment she affixed her signature thereon, petitioner became bound by all the terms stipulated in the receipt. She, thus, opened herself to all the legal obligations that may arise from their breach. This is clear from Article 1356 of the New Civil Code which provides: Contracts shall be obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present. However, there are some provisions of the law which require certain formalities for particular contracts. The first is when the form is required for the validity of the contract; the second is when it is required to make the contract effective as against third parties such as those mentioned in Articles 1357 and 1358; and the third is when the form is required for the purpose of proving the existence of the contract, such as those provided in the Statute of Frauds in Article 1403. Furthermore, there is only one type of legal instrument where the law strictly prescribes the location of the signature of the parties thereto. This is in the case of notarial wills found in Article 805 of the Civil Code. Reynoso, for a period of one year beginning August 8, 1976, at a monthly rental of P4,000.00. A contract of agency to sell on commission basis does not belong to any of these three categories, hence it is valid and enforceable in whatever form it may be entered into. The Contract of lease states that in case the LESSOR desires or decides to sell the leased property, the LESSEES shall be given a first priority to purchase the same, all things and considerations being equal. 31. GUZMAN, BOCALING & CO.v. RAOUL S.V. BONNEVIE G.R. No. 86150. March 2, 1992. By: Salto, Dianne D. Doctrine: Under Article 1380 to 1381 (3) of the Civil Code, a contract otherwise valid may nonetheless be subsequently rescinded by reason of injury to third persons, like creditors. Rescission is a remedy granted by law to the contracting parties and even to third persons, to secure reparation for damages caused to them by a contract, even if this should be valid, by means of the restoration of things to their condition at the moment prior to the celebration of said contract. It is a relief allowed for the protection of one of the contracting parties and even third persons from all injury and damage the contract may cause, or to protect some incompatible and preferential right created by the contract. Recission implies a contract which, even if initially valid, produces a lesion or pecuniary damage to someone that justifies its invalidation for reasons of equity. Facts: The subject of the controversy is a parcel of land measuring six hundred (600) square meters, more or less, with two buildings constructed thereon, belonging to the Intestate Estate of Jose L. Reynoso. This property was leased to Raoul S. Bonnevie and Christopher Bonnevie by the administratrix, Africa Valdez de Reynoso, she notified the private respondents by registered mail that she was selling the leased premises for P600,000.00 less a mortgage loan of P100,000.00, and was giving them 30 days from receipt of the letter within which to exercise their right of first priority to purchase the subject property. She said that in the event that they did not exercise the said right, she would expect them to vacate the property not later than March, 1977. On January 20, 1977, Reynoso sent another letter to private respondents advising them that in view of their failure to exercise their right of first priority, she had already sold the property. Private respondents then wrote Reynoso informing that neither of them had received her letter. However, on March 7, 1977, the leased premises were formally sold to petitioner Guzman, Bocaling & Co. The Contract of Sale provided for immediate payment of P137,500.00 on the purchase price, the balance of P262,500.00 to be paid only when the premises were vacated. Thereafter, Reynoso wrote a letter to the private respondents demanding that they vacate the premises within 15 days for their failure to pay the rentals for four months. When they refuse, Reynoso filed a complaint for ejectment against them. On September 25, 1979, the parties submitted a Compromise Agreement, which provided the defendant Raoul S.V. Bonnevie shall vacate the premises subject of the Lease Contract, Voluntarily and Peacefully not later than October 31, 1979. However, as the private respondents failed to comply with the above-qouted stipulation, Reynoso filed a motion for execution of the judgment by compromise, which was granted on November 8, 1979. On November 12, 1979, private respondent Raoul S. Bonnevie filed a motion to set aside the decision of the City Court as well as the Compromise Agreement. The motion was denied and the case was elevated to the then CFI which remanded the case to the City Court of Manila for trial on the merits. While the ejectment case was pending in the City Court, the private respondents filed an action for annulment of the sale between Reynoso and petitioner Guzman, Bocaling & Co. and cancellation of the transfer certificate of title in the name of the latter. They also asked that Reynoso be required to sell the property to them under the same terms ands conditions agreed upon in the Contract of Sale which was docketed as civil case no 131461. On May 5, 1980, the City Court on the ejectment case ordered defendants to vacate the premises and to deliver possession thereof to the plaintiff, and to pay to the latter a sum of money as reasonable compensation for the continued unlawful use and occupation of said premises. Decision was appealed to the CFI and consolidated with civil case no 131461. CFI: Ordered defendants Bonnevie to vacate the premises and the deed of sale between Reynoso and Guzman Bocaling null and void. CA: Affirmed CFI ruling but reduced damages. Issue/s: Whether or not the contract of sale was rescissible. Ruling: YES. The respondent court correctly held that the Contract of Sale was not voidable but rescissible. Under Article 1380 to 1381 (3) of the Civil Code, a contract otherwise valid may nonetheless be subsequently rescinded by reason of injury to third persons, like creditors. The status of creditors could be validly accorded the Bonnevies for they had substantial interests that were prejudiced by the sale of the subject property to the petitioner without recognizing their right of first priority under the Contract of Lease. According to Tolentino, rescission is a remedy granted by law to the contracting parties and even to third persons, to secure reparation for damages caused to them by a contract, even if this should be valid, by means of the restoration of things to their condition at the moment prior to the celebration of said contract. It is a relief allowed for the protection of one of the contracting parties and even third persons from all injury and damage the contract may cause, or to protect some incompatible and preferent right created by the contract. Recission implies a contract which, even if initially valid, produces a lesion or pecuniary damage to someone that justifies its invalidation for reasons of equity. It is true that the acquisition by a third person of the property subject of the contract is an obstacle to the action for its rescission where it is shown that such third person is in lawful possession of the subject of the contract and that he did not act in bad faith. However, this rule is not applicable in the case before us because the petitioner is not considered a third party in relation to the Contract of Sale nor may its possession of the subject property be regarded as acquired lawfully and in good faith. The petitioner cannot be deemed a purchaser in good faith for the record shows that it categorically admitted it was aware of the lease in favor of the Bonnevies, who were actually occupying the subject property at the time it was sold to it. Although the Contract of Lease was not annotated on the transfer certificate of title in the name of the late Jose Reynoso and Africa Reynoso, the petitioner cannot deny actual knowledge of such lease which was equivalent to and indeed more binding than presumed notice by registration. The petitioner’s contention that it was not aware of the right of first priority granted by the Contract of Lease is also unmeritorious since having known that the property it was buying was under lease, it behooved it as a prudent person to have required Reynoso or the broker to show to it the Contract of Lease in which Par. 20 is contained. 32. Jovan Land vs. CA, GR No. 125531, Feb. 12, 1997 By: Sanchez, Precious Loren Doctrine: It is a fundamental principle that before a contract of sale can be valid, the following elements must be present: (a) consent or meeting of the minds; (b) determinate subject matter; (c) price certain in money or its equivalent. Until the contract of sale is perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation between the parties. to the other, to give something or to render some service. A contract undergoes various stages that include its negotiation or preparation, its perfection and, finally, its consummation. Negotiation covers the period from the time the prospective contracting parties indicate interest in the contract to the time the contract is concluded. The perfection of the contract takes place upon the concurrence of the essential elements thereof. Facts: Petitioner Jovan Land Inc. is a corporation engaged in the real estate business. Private respondent Eugenio Quesada is the owner of the Q building located at Mayhaligue, Sta. Cruz, Manila. Petitioner learned that private respondent was selling the Mayhaligue property. Thus, petitioner through Joseph Sy (President and Chairman of the Board of Directors of Jovan Land Inc.), made a written offer to purchase the Mayhaligue property. The first and second offers were clearly not accepted by Quesada. For the third written offer, it is for 12 million pesos with a similar check for 1 million pesos as earnest money. Annotated on this third letter-offer was the phrase “received original, 9-4-89” beside which appears the signature of Quesada. On the basis of this annotation which petitioner insists is the proof that there already exists a valid, perfected agreement to sell the Mayhaligue property, petitioner filed with the trial court, a complaint for specific performance and collection of sum of money with damages. Moreover, it is a fundamental principle that before a contract of sale can be valid, the following elements must be present: (a) consent or meeting of the minds; (b) determinate subject matter; (c) price certain in money or its equivalent. Until the contract of sale is perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation between the parties. RTC: dismissed the complaint, stating that the business encounters between Sy and Quesada had not passed the negotiation stage relating to the intended sale. As the court finds, there is nothing in the record to point that a contract was ever perfected. CA: affirmed RTC’s ruling. Issue: Whether or not there already exists a valid, perfected agreement between Sy and Quesada? Ruling: No. Under the law, a contract is a meeting of minds between two persons whereby one binds himself, with respect In this case, petitioner, anchors its main argument on the annotation on its third-letter offer of the phrase “received original, 9-4-89.” It also contends that the said annotation is evidence to show that there was already a perfected agreement to sell as respondent can be said to have accepted petitioner’s payment in the form of a check which was enclosed in the third letter. However, as correctly elucidated by the CA: there is nothing written or documentary to show that the offer was accepted by Quesada. The court cannot believe that this notation would signify the acceptance of the offer. The requisites of a valid contract of sale are lacking, therefore the “sale” is neither valid nor enforceable. 33. Ching vs. Goyanko Jr., GR 165879, Nov. 10, 2006 By: Umangay, Karen Abigail Doctrine: The proscription against sale of property between spouses applies even to common law relationships. Facts: Joseph Goyanko and Epifania dela Cruz were married. Their children came that in 1961, their parents acquired a property in Cebu but that as they were Chinese citizens at the time, the property was registered in the name of their aunt Sulpicia Ventura. In 1993, Sulpicia executed a deed of sale in favor of Goyanko Sr. In turn, Goyanko Sr. executed a deed of sale in favor of his common-law-wife Maria Ching. After Goyanko’s death, respondents discovered that the property had been transferred in the name of Ching. Respondents had the purported signature of their father in the deed of sale verified by the PNP Crime Laboratory which found the same to be a forgery. Respondents filed with the RTC a complaint for recovery of property and damages against Ching praying for the nullification of the deed and of the TCT and the issuance of a new one in favor of Goyanko. Petitioner claimed that she is the actual owner of the property as it was she who provided its purchase price. RTC dismissed the complaint against Ching. here is no valid and sufficient ground to declare the sale as null and void, fictitious and simulated. The signature on the questioned Deed of Sale is genuine. Testimony of notary is more reliable than document examiners. CA reversed and declared null and void the deed of sale. Issue/s: Is the sale between Goyanko and Ching valid? Ruling: No. The proscription against sale of property between spouses applies even to common law relationships. Hence, the sale made by Goyanko in favor of his concubine is null and void for being contrary to morals and public policy. Article 1490 provides that “the husband and wife cannot sell property to each other, except when a separation of property...” Article 1352 provides that “Contracts without cause, or with unlawful cause, produce no effect whatever. The cause is unlawful if it is contrary to law, morals, good customs, public order or public policy.” These are void from the beginning. The law emphatically prohibits the spouses from selling property to each other subject to certain exceptions. Similarly, donations between spouses during marriage are prohibited. And this is so because if transfers or conveyances between spouses were allowed during marriage, that would destroy the system of conjugal partnership, a basic policy in civil law. It was also designed to prevent the exercise of undue influence by one spouse over the other, as well as to protect the institution of marriage, which is the cornerstone of family law. The prohibitions apply to a couple living as husband and wife without benefit of marriage, otherwise, "the condition of those who incurred guilt would turn out to be better than those in legal union." 34. Sacobia Hills Dev. Corp. vs. Ty, GR 165889, Sept. 20, 2005 By: Uson, Nichole John O. Doctrine: In a Contract to Sell, the payment of the purchase price is a positive suspensive condition, the failure of which is not a breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force. It is one where the happening of the event gives rise to an obligation. Thus, for its non-fulfillment there will be no contract to speak of, the obligor having failed to perform the suspensive condition which enforces a juridical relation. In fact with this circumstance, there can be no rescission of an obligation that is still non-existent, the suspensive condition not having occurred as yet. Facts: Sacobia Hills Development Corporation (Sacobia) is the developer of True North Golf and Country Club (True North) located inside the Clark Special Economic Zone. Allan U. Ty wrote to Sacobia a letter expressing his intention to acquire one (1) Class A share of True North and accordingly paid the reservation fee of P180,000.00. Sacobia approved the purchase application and membership of respondent for P600,000.00, subject to certain terms and conditions to wit; Approval of an application to purchase golf/country club shares is subjected to the full payment of the total purchase price, Reserved share shall be considered withdrawn and may be deemed cancelled should you fail to settle obligation. Ty sent Sacobia a letter formally rescinding the contract and demanding for the refund of the P409,090.92 thus far paid by him due to the failure to complete the project on time as represented. Sacobia informed respondent that it had a norefund policy, and that it had endorsed respondent to Century Properties, Inc. for assistance on the resale of his share to third persons. Ty filed a complaint for rescission and damages before the SEC but the case was eventually transferred to the RTC Manila. RTC ruled in favor of Sacobia however CA reversed and ruled in favor of Ty. Issue: Whether or not the contract entered into by the parties may be validly rescinded under Article 1191 of the Civil Code? Ruling: NO, the contract entered into by the parties may not be validly rescinded under Article 1191 of the Civil Code because the obligation to sell is inexistent due to the nonfulfillment of the suspensive condition which is the payment of the full purchase price. In the notice of approval, which embodies the terms and conditions of the agreement, Sacobia signified its intent to retain the ownership of the property until such time that the respondent has fully paid the purchase price. This condition precedent is characteristic of a contract to sell. Since the agreement between Sacobia and Ty is a contract to sell, the full payment of the purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and ownership is retained by the seller without further remedies by the buyer. In a Contract to Sell, the payment of the purchase price is a positive suspensive condition, the failure of which is not a breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force. It is one where the happening of the event gives rise to an obligation. Thus, for its non-fulfillment there will be no contract to speak of, the obligor having failed to perform the suspensive condition which enforces a juridical relation. In fact with this circumstance, there can be no rescission of an obligation that is still non-existent, the suspensive condition not having occurred as yet. Emphasis should be made that the breach contemplated in Article 1191 of the New Civil Code is the obligors failure to comply with an obligation already extant, not a failure of a condition to render binding that obligation. In a contract to sell, the prospective seller does not consent to transfer ownership of the property to the buyer until the happening of an event, which for present purposes, is the full payment of the purchase price. What the seller agrees or obliges himself to do is to fulfill his promise to sell the subject property when the entire amount of the purchase price is delivered to him. Upon the fulfillment of the suspensive condition, ownership will not automatically transfer to the buyer although the property may have been previously delivered to him. The prospective seller still has to convey title to the prospective buyer by entering into a contract of absolute sale. According to True North Payment Schedule, respondents checks dated from October 12, 1997 until January 12, 1998 were marked as stale. His failure to cover the value of the checks and by issuing a stop payment order effectively abated the perfection of the contract. For it is understood that when a sale is made subject to a suspensive condition, perfection is had only from the moment the condition is fulfilled.As shown, Ty did not pay the full purchase price which is his obligation under the contract to sell, therefore, it cannot be said that Sacobia breached its obligation. No obligations arose on its part because respondents non-fulfillment of the suspensive condition rendered the contract to sell ineffective and unperfected. Indeed, there can be no rescission under Article 1191 of the Civil Code because until the happening of the condition, i.e. full payment of the contract price, Sacobias obligation to deliver the title and object of the sale is not yet extant. A non-existent obligation cannot be subject of rescission. Article 1191 speaks of obligations already existing, which may be rescinded in case one of the obligors fails to comply with what is incumbent upon him. As earlier discussed, the payment by Ty of the reservation fee as well as the issuance of the postdated checks is subject to the condition that Sacobia was reserving title until full payment, which is the essence of a contract to sell. The perfection of this kind of contract would give rise to two distinct obligations, namely, 1) the buyers obligation to fulfill the suspensive condition, i.e. the full payment of the contract price as in the instant case, and, 2) the correlative obligation of the seller to convey ownership upon compliance of the suspensive condition. 35. ACE FOODS, INC. vs. MICRO PACIFIC TECHNOLOGIES CO., LTD., G.R. No. 200602, December 11, 2013 By: VARGAS, Rose Shahanna G. Doctrine: A contract of sale is classified as a consensual contract, which means that the sale is perfected by mere consent. No particular form is required for its validity. Upon perfection of the contract, the parties may reciprocally demand performance, i.e., the vendee may compel transfer of ownership of the object of the sale, and the vendor may require the vendee to pay the thing sold. In contrast, a contract to sell is defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the property despite delivery thereof to the prospective buyer, binds himself to sell the property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, i.e., the full payment of the purchase price. Facts: ACE Foods is a domestic corporation engaged in the trading and distribution of consumer goods in wholesale and retail bases, while MTCL is one engaged in the supply of computer hardware and equipment. On September 26, 2001, MTCL sent a letter-proposal for the delivery and sale of the subject products to be installed at various offices of ACE Foods. The said proposal further provides for the following terms, viz.: TERMS VALIDITY : Thirty (30) days upon delivery : Prices are based on current dollar rate and subject to changes without prior notice. DELIVERY : Immediate delivery for items on stock, otherwise thirty (30) to forty-five days upon receipt of [Purchase Order] WARRANTY : One (1) year on parts and services. Accessories not included in warranty. On October 29, 2001, ACE Foods accepted MTCL’s proposal and accordingly issued purchase order amounting to ₱646,464.00 (purchase price). On March 4, 2002, MTCL delivered the said products to ACE Foods as reflected in an invoice receipt. The fine print of the invoice states that "title to sold property is reserved in MICROPACIFIC TECHNOLOGIES CO., LTD. until full compliance of the terms and conditions of above and payment of the price” (title reservation stipulation). After delivery, the subject products were then installed and configured in ACE Foods’s premises. However, MTCL’s demands against ACE Foods to pay the purchase price remained unheeded. Instead of paying the purchase price, ACE Foods sent MTCL a Letter dated September 19, 2002, stating that it "has been returning the subject products to MTCL thru its sales representative, Mr. Mark Anteola, who has agreed to pull out the said products but had failed to do so up to now." On October 16, 2002, ACE Foods lodged a Complaint against MTCL before the RTC, praying that the latter pull out from its premises the subject products since MTCL breached its "after delivery services" obligations to it, particularly, to: (a) install and configure the subject products; (b) submit a cost benefit study to justify the purchase of the subject products; and (c) train ACE Foods’s technicians on how to use and maintain the subject products. ACE Foods likewise claimed that the subject products MTCL delivered are defective and not working. MTCL, however, maintained that it had duly complied with its obligations to ACE Foods and that the subject products were in good working condition when they were delivered, installed and configured in ACE Foods’s premises. Thereafter, MTCL even conducted a training course for ACE Foods’s representatives/employees; MTCL, however, alleged that there was actually no agreement as to the purported "after delivery services." Further, MTCL posited that ACE Foods refused and failed to pay the purchase price for the subject products despite the latter’s use of the same for a period of nine (9) months. As such, MTCL prayed that ACE Foods be compelled to pay the purchase price, as well as damages related to the transaction. RTC: directed MTCL to remove the subject products from ACE Foods’s premises and pay actual damages and attorney fees. It observed that the agreement between ACE Foods and MTCL is in the nature of a contract to sell. Its conclusion was based on the fine print of the Invoice Receipt. It noted that the full payment of the price is a positive suspensive condition, the non-payment of which prevents the obligation to sell on the part of the seller/vendor from materializing at all. Since title remained with MTCL, the RTC, therefore, directed it to withdraw the subject products from ACE Foods’s premises. CA: reversed and set aside the RTC’s ruling, and ordered ACE Foods to pay MTCL plus legal interest. It found that the agreement between the parties is in the nature of a contract of sale, observing that the said contract had been perfected from the time ACE Foods sent the Purchase Order to MTCL which, in turn, delivered the subject products covered by the Invoice Receipt and subsequently installed and configured them in ACE Foods’s premises. It concluded that it was erroneous for ACE Foods not to pay the purchase price therefor, despite its receipt of the subject products, because its refusal to pay disregards the very essence of reciprocity in a contract of sale. Issue: Whether ACE Foods should pay MTCL the purchase price for the subject products. Ruling: YES. The Supreme Court ruled that the the parties have agreed to a contract of sale and not to a contract to sell. Article 1458 of the Civil Code provides that “by the contract of sale one of the contracting parties obligates himself to transfer the ownership and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.” The very essence of a contract of sale is the transfer of ownership in exchange for a price paid or promised. A contract of sale may be absolute or conditional. A contract of sale is classified as a consensual contract, which means that the sale is perfected by mere consent. No particular form is required for its validity. Upon perfection of the contract, the parties may reciprocally demand performance, i.e., the vendee may compel transfer of ownership of the object of the sale, and the vendor may require the vendee to pay the thing sold. In contrast, a contract to sell is defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the property despite delivery thereof to the prospective buyer, binds himself to sell the property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, i.e., the full payment of the purchase price. A contract to sell may not even be considered as a conditional contract of sale where the seller may likewise reserve title to the property subject of the sale until the fulfillment of a suspensive condition, because in a conditional contract of sale, the first element of consent is present, although it is conditioned upon the happening of a contingent event which may or may not occur. In this case, bearing in mind its consensual nature, a contract of sale had been perfected at the precise moment ACE Foods, as evinced by its act of sending MTCL the Purchase Order, accepted the latter’s proposal to sell the subject products in consideration of their agreed purchase price. At that point, the reciprocal obligations of the parties – i.e., on the one hand, of MTCL to deliver the said products to ACE Foods, and, on the other hand, of ACE Foods to pay the purchase price therefor within thirty (30) days from delivery – already arose and consequently may be demanded. The Court further ruled that the title reservation stipulation did not change the transaction from a contract of sale into a contract to sell. Records did not show that the said stipulation novated the contract of sale between the parties which, to repeat, already existed at the precise moment ACE Foods accepted MTCL’s proposal. To be sure, novation, in its broad concept, may either be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a new obligation that takes the place of the former; it is merely modificatory when the old obligation subsists to the extent it remains compatible with the amendatory agreement. In either case, however, novation is never presumed, and the animus novandi, whether totally or partially, must appear by express agreement of the parties, or by their acts that are too clear and unequivocal to be mistaken. In the present case, it was not shown that the title reservation stipulation appearing in the Invoice Receipt had been included or had subsequently modified or superseded the original agreement of the parties. The fact that the Invoice Receipt was signed by a representative of ACE Foods did not, by and of itself, prove animus novandi since: (a) it was not shown that the signatory was authorized by ACE Foods (the actual party to the transaction) to novate the original agreement; (b) the signature only proves that the Invoice Receipt was received by a representative of ACE Foods to show the fact of delivery; and (c) as matter of judicial notice, invoices are generally issued at the consummation stage of the contract and not its perfection, and have been even treated as documents which are not actionable per se, although they may prove sufficient delivery. Thus, absent any clear indication that the title reservation stipulation was actually agreed upon, the Court must deem the same to be a mere unilateral imposition on the part of MTCL which has no effect on the nature of the parties’ original agreement as a contract of sale. Perforce, the obligations arising thereto, among others, ACE Foods’s obligation to pay the purchase price as well as to accept the delivery of the goods, remain enforceable and subsisting. 36. The Heirs of Victorino Sarili vs. Pedro F. Lagrosa, G.R. No. 193517, January 15, 2014 By: Villaranda, Charise DOCTRINE: The general rule is that every person dealing with registered land may safely rely on the correctness of the certificate of title issued therefore and the law will in no way oblige him to go beyond the certificate to determine the condition of the property. However, a higher degree of prudence is required from one who buys from a person who is not the registered owner, although the land object of the transaction is registered. In such a case, the buyer is expected to examine not only the certificate of title but all factual circumstances necessary for him to determine if there are any flaws in the title of the transferor. The buyer also has the duty to ascertain the identity of the person with whom he is dealing with and the latter’s legal authority to convey the property. FACTS: Lagrosa filed a complaint against Sps. Sarili alleging that he is the owner of a certain parcel of land situated in Caloocan City covered by TCT No. 55979 and has been religiously paying the real estate taxes therefore since November 29, 1974. He and his wife had immigrated to the USA since 1968 and is now a resident of California, USA and he only discovered that a new certificate of title to the subject property was issued by the register of deeds in the name of Victorino, married to Isabel Amparo, during his vacation in the Philippines. that his investigation went beyond the document and into the circumstances of its execution. He further alleged that it was due to a falsified Deed of Absolute Sale purportedly executed by him and his wife, dated February 16, 1978, which was a result of the fraudulent, illegal and malicious acts committed by Sps. Sarili and the Register of Deeds in order to acquire the subject property. In the present case, it is undisputed that Sps. Sarili purchased the subject property from Ramos on the strength of the latter’s ostensible authority to sell under the subject SPA. The said document, however, readily indicates flaws in its notarial acknowledgment since the respondent’s community tax certificate (CTC) number was not indicated thereon; which is required under the governing rule on notarial acknowledgements at that time. Despite this irregularity, however, Sps. Sarili failed to show that they conducted an investigation beyond the subject SPA and into the circumstances of its execution as required by prevailing jurisprudence. Hence, Sps. Sarili cannot be considered as innocent purchasers for value. Sps. Sarili, on the other hand, maintained that they are innocent purchasers for value, having purchased the subject property from one Ramon Rodriguez, who possessed and presented a Special Power of Attorney to sell/dispose of the same, and, in such capacity, executed a Deed of Absolute sale dated November 20, 1992 conveying the said property in their favor. Article 1874 of the Civil Code provides that "[w]hen a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void." In other words, if the subject SPA was not proven to be duly executed and authentic, then it cannot be said that the foregoing requirement had been complied with; hence, the sale would be void. ISSUE: Whether there was a valid conveyance of the subject property to Sps. Sarili The Court also holds that the due execution and authenticity of the subject SPA were not sufficiently established under Section 20, Rule 132 of the Rules of Court as above-cited. HELD: There was no valid conveyance of the subject property to Sps. Sarili. The strength of the buyer’s inquiry on the seller’s capacity or legal authority to sell depends on the proof of capacity of the seller. If the proof of capacity consists of a special power of attorney duly notarized, mere inspection of the face of such public document already constitutes sufficient inquiry. If no such special power of attorney is provided or there is one but there appears to be flaws in its notarial acknowledgment, mere inspection of the document will not do; the buyer must show Since Sps. Sarili’s claim over the subject property is based on forged documents, no valid title had been transferred to them (and, in turn, to petitioners). Verily, when the instrument presented is forged, even if accompanied by the owner’s duplicate certificate of title, the registered owner does not thereby lose his title, and neither does the assignee in the forged deed acquire any right or title to the property. 37. Spouses Suntay vs. Keyser Mercantile, Inc., GR 208462, Dec. 10, 2014 By: Abueg, Raponcel Doctrine: A levy on execution duly registered takes preference over a prior unregistered sale. Levy on execution is superior to the subsequent registration of the deed of absolute sale. Primus tempore, potior jure (first in time, stronger in right). Facts: Bayfront and Keyser entered into a Contract to Sell. The property involved is a condominium Unit G with 2 parking slots in Bayfront Tower Condominium covered by CCT No. 15802. It has been fully paid by Keyser but the sale was not duly registered with the Registry of Deeds, hence the title over the property remained with Bayfront. It is a clean title. Spouses Suntay also purchased several condominium units from Bayfront. Despite payment of the full purchase price, Bayfront failed to deliver the condominium units. When Bayfront failed to reimburse the full purchase price, Spouses Suntay filed an action against it for rescission of contract, sum of money, and damages before the HLURB. HLURB rescinded the Contract to Sell and ordered Bayfront to pay Spouses Suntay the full purchase price with interest. Upon the application of Spouses Suntay, the Sheriffs of Manila RTC levied Bayfront’s titled properties, including the subject condominium Unit G and the two parking slots. Considering that CCT No. 15802 was still registered under Bayfront with a clean title, the sheriffs deemed it proper to be levied. The levy on execution was duly recorded in the Register of Deeds of Manila. An auction sale proceeded and the highest/winning bidders were the Sps. Suntay. The Certificate of Sale in favor of Spouses Suntay was issued. This was duly annotated at the back of CCT No. 15802. Keyser filed a complaint for annulment of auction sale, writ of execution, declaration of nullity of title, and reconveyance of property with damages against Spouses Suntay. Issue/s: Whether or not the latter duly recorded levy on execution takes preference over the prior unregistered contract to sell Ruling: YES. The doctrine is well settled that a levy on execution duly registered takes preference over a prior unregistered sale. In this case, the contract to sell between Keyser and Bayfront was executed on October 20, 1989, but the deed of absolute sale was only made on November 9, 1995 and registered on March 12, 1996. The Notice of Levy in favor of Spouses Suntay was registered on January 18, 1995, while the Certificate of Sale on April 7, 1995, both dates clearly ahead of Keyser’s registration of its Deed of Absolute Sale. Evidently, applying the doctrine of primus tempore, potior jure (first in time, stronger in right), Spouses Suntay have a better right than Keyser. 38. Leong, et. al. vs. Edna See, GR 194077, Dec. 3, 2014 By: Alegre, Kristine Joyce Doctrine: An innocent purchaser for value refers to someone who "buys the property of another without notice that some other person has a right to or interest in it, and who pays a full and fair price at the time of the purchase or before receiving any notice of another person’s claim." One claiming to be an innocent purchaser for value has the burden of proving such status. Facts: Spouses Florentino and Carmelita Leong (SPS Leong) owned property in Quiapo, Manila. (Quiapo Property) Petitioner Elena was Florentino’s sister in law, she stayed on the property rental free for over 2 decades till the building was burned. After, she still continued to live on the property rentfree. Sps Leong then immigrated to the US and were divorced in Illinois. In their settlement, it was indicatedthat "Florentino shall convey and quitclaim all of his right, title and interest in the Quiapo Property to Carmelita. Carmelita then sold the land to Respondent, Edna See (Edna). In lieu of Florentino’s signature of conformity, Carmelita presented a notarized waiver of interest in Illinois. In this waiver, Florentino reiterated his quitclaim over his right, title, and interest to the land. Consequently, the land’s title, covered by TCT No. 231105, was transferred to Edna's name. Even after such sale, petitioner Elena and other Leong relatives still lived in the Quiapo property. Demands for them to vacate went unheeded. Subsequently, Edna filed a complaint for recovery of possession against Elena and other relatives of the SPS Leong. RTC: Ruled in favor of Edna, and granted her possession and ownership CA: Affirmed RTC decision Hence, this petition. Petitioners argue that Edna was a buyer in bad faith. As such, respondent should bear the loss of her negligence in purchasing the property without Florentino’s consent. Further, they state that the lower courts were wrong in ruling that respondents was entitled to possession of the property. Issue/s: Was Edna C. See a buyer in good faith and for value? Ruling: YES. The SC ruled that the lower courts correctly found that respondent is a purchaser in good faith for value who exercised the necessary diligence in purchasing the property. An innocent purchaser for value refers to someone who "buys the property of another without notice that some other person has a right to or interest in it, and who paysa full and fair price at the time of the purchase or before receiving any notice of another person’s claim." One claiming to be an innocent purchaser for value has the burden of proving such status. Here, Edna did not rely on the clean title alone because of the possession by third parties, she also relied on Florentino’s waiver of interest. Additionally, she verified the authenticity of thte title at the Manila Register of Deeds with her father and Carmelita. Lastly, respondent, an innocent purchaser in good faith and for value with title in her name, has a better right to the property than Elena. Elena’s possession was neither adverse to nor in the concept of owner. Thus, respondent had every right to pursue her claims as she did. 39. Gatchalian Realty Inc. vs. Angeles, G.R. No. 202358, Nov. 27, 2013 Doctrine: Maceda Law; Realty Installment Buyer Protection Act (R.A. No. 6552); Republic Act No. 6552, also known as the Maceda Law, or the Realty Installment Buyer Protection Act, has the declared public policy of “protecting buyers of real estate on installment payments against onerous and oppressive conditions.” The buyer’s failure to pay the installments due at the expiration of the grace period allows the seller to cancel the contract after 30 days from the buyer’s receipt of the notice of cancellation or demand for rescission of the contract by a notarial act. Paragraph 6(a) of the contract gave Angeles the same rights. This Court has been consistent in ruling that a valid and effective cancellation under R.A. 6552 must comply with the mandatory twin requirements of (a) a notarized notice of cancellation and (b) a refund of the cash surrender value. Facts: On Dec. 28, 1994, Respondent Angeles purchased a house (Contract to Sell No. 2271) and lot (Contract to Sell No. 2272) from Petitioner Gatchalian (GRI) valued P750,000.00 for a period of ten years. The house and lot were delivered to Respondent Angeles in 1995, nonetheless under the contracts to sell between the parties, GRI retained ownership of the property until full payment of the purchase price. After sometime, Angeles failed to satisfy her monthly installments with GRI. Angeles was only able to pay thirty-five (35) installments for Contract to Sell No. 2271 and forty-eight (48) installments for Contract to Sell No. 2272. According to GRI, Angeles was given at least twelve (12) notices for payment in a span of three (3) years but she still failed to settle her account despite receipt of said notices and without any valid reason. Angeles was again given more time to pay her dues and likewise furnished with three (3) notices reminding her to pay her outstanding balance with warning of impending legal action and/or rescission of the contracts, but to no avail. After giving a total of fifty-one (51) months grace period for both contracts and in consideration of the continued disregard of the demands of GRI, Angeles was served with a notice of notarial rescission dated 11 September 2003 by registered mail which she allegedly received on 19 September 2003 as evidenced by a registry return receipt. Allegedly, [Angeles] subsequently sent postal money orders through registered mail to GRI. In a letter dated 27 January 2004 Angeles was notified by GRI of its receipt of a postal money order sent by Angeles. More so, she was requested to notify GRI of the purpose of the payment. Angeles was informed that if the postal money order was for her monthly amortization, the same will not be accepted and she was likewise requested to pick it up from GRI’s office. On 29 January 2004, another mail with a postal money order was sent by Angeles to GRI. In her 6 February 2004 letter, GRI was informed that the postal money orders were supposed to be payments for her monthly amortization. Again, in its 8 February 2004 letter, it was reiterated by GRI that the postal money orders will only be accepted if the same will serve as payment of her outstanding rentals and not as monthly amortization. Four (4) more postal money orders were sent by Angeles by registered mail to GRI. For her continued failure to satisfy her obligations with GRI and her refusal to vacate the house and lot, GRI filed a complaint for unlawful detainer against Angeles on 11 November 2003 MTC ruled in favor of GRI. Angeles appeal before RTC of Las Pinas initially produced a result favorable to her. The RTC found that the case was one for ejectment. As an ejectment court, the MeTC’s jurisdiction is limited only to the issue of possession and does not include the title or ownership of the properties in question. The RTC pointed out that Republic Act No. 6552 (R.A. 6552) provides that the non-payment by the buyer of an installment prevents the obligation of the seller to convey title from acquiring binding force. Moreover, cancellation of the contract to sell may be done outside the court when the buyer agrees to the cancellation. In the present case, Angeles denied knowledge of GRI’s notice of cancellation. Cancellation of the contract must be done in accordance with Section 3 of R.A. 6552, which requires a notarial act of rescission and refund to the buyer of the cash surrender value of the payments on the properties. Thus, GRI cannot insist on compliance with Section 3(b) of R.A. 6552 by applying Angeles’ cash surrender value to the rentals of the properties after Angeles failed to pay the installments due. Issue/s: 1.Was there refund of the cash surrender value to RESPONDENT pursuant to R.A. No. 6552? NO. 2.Did the actual cancellation of the contract between the parties take place? NO. Ruling: Republic Act No. 6552, also known as the Maceda Law, or the Realty Installment Buyer Protection Act, has the declared public policy of "protecting buyers of real estate on installment payments against onerous and oppressive conditions." Section 3 of R.A. 6552 provides for the rights of a buyer who has paid at least two years of installments but defaults in the payment of succeeding installments. The Court examine GRI’s compliance with the requirements of R.A. 6552, as it insists that it extended to Angeles considerations that are beyond what the law provides. and proper evidence. To establish its claim of service of the notarial rescission upon Angeles, GRI presented the affidavit of its liaison officer Fortunato Gumahad, the registry receipt from the Greenhills Post Office, and the registry return receipt. We affirm the CA’s ruling that GRI was able to substantiate its claim that it served Angeles the notarial rescission sent through registered mail in accordance with the requirements of R.A. 6552. Grace Period Actual Cancellation of the Contracts – There was no actual cancellation of the contracts because of GRI’s failure to actually refund the cash surrender value to Angeles. It should be noted that Section 3 of R.A. 6552 and paragraph six of Contract Nos. 2271 and 2272, speak of "two years of installments." The basis for computation of the term refers to the installments that correspond to the number of months of payments, and not to the number of months that the contract is in effect as well as any grace period that has been given. Both the law and the contracts thus prevent any buyer who has not been diligent in paying his monthly installments from unduly claiming the rights provided in Section 3 of R.A. 6552. Section 3(a) of R.A. 6552 provides that the total grace period corresponds to one month for every one year of installment payments made, provided that the buyer may exercise this right only once in every five years of the life of the contract and its extensions. The buyer’s failure to pay the installments due at the expiration of the grace period allows the seller to cancel the contract after 30 days from the buyer’s receipt of the notice of cancellation or demand for rescission of the contract by a notarial act. Paragraph 6(a) of the contract gave Angeles the same rights. Both the RTC and the CA found that GRI gave Angeles an accumulated grace period of 51 months. This extension went beyond what was provided in R.A. 6552 and in their contracts. Receipt of the Notice of Notarial Rescission The registry return of the registered mail is prima facie proof of the facts indicated therein. Angeles failed to present contrary evidence to rebut this presumption with competent Mandatory Twin Requirements: Notarized Notice of Cancellation & Refund of Cash Surrender Value This Court has been consistent in ruling that a valid and effective cancellation under R.A. 6552 must comply with the mandatory twin requirements. In view of the absence of a valid cancellation, the Contract to Sell between GRI and Angeles remains valid and subsisting. Remedies of the Buyer in the Absence of a Valid Cancellation of a Contract to Sell – Considering that GRI did not validly rescind the Contracts to Sell, Angeles has 2 options: a) The option to pay the unpaid balance of the full value of the purchase price of the subject properties plus interest and b) the option to accept the cash surrender value of the subject properties, with interest. Should Evelyn M. Angeles choose to pay the unpaid balance, she shall pay, within 60 days from the MeTC’s determination of the proper amounts, the unpaid balance of the full value of the purchase price of the subject properties plus interest at 6% per annum from 11 November 2003, the date of filing of the complaint, up to the finality of this Decision, and thereafter, at the rate of 6% per annum. Upon payment of the full amount, GRI shall immediately execute Deeds of Absolute Sale over the subject properties and deliver the corresponding transfer certificate of title to Angeles. In the event that the subject properties are no longer available, GRI should offer substitute properties of equal value. Should Angeles refuse the substitute properties, GRI shall refund to Angeles the actual value of the subject properties with 6 interest per annum computed from November 2003, the date of the filing of the complaint, until fully paid. Should Evelyn M. Angeles choose to accept payment of the cash surrender value, she shall receive from GRI ₱574,148.40 with interest at 6 per annum computed from November 2003, the date of the filing of the complaint, until fully paid. Contracts to Sell Nos. 2271 and 2272 shall be deemed cancelled 30 days after Angeles' receipt of GRI's full payment of the cash surrender value. No rent is further charged upon Evelyn M. Angeles. 40. Alfaro et.al vs Sps. Dumalagan, et. al. G.R. No. 186622 January 22, 2014 By: Aricheta, Paula Doctrine: Article 1544 clearly states that the rule on double or multiple sales applies only when all the purchasers are in good faith. In detail Art. 1544 requires that before the second buyer can obtain priority over the first, he must show that he acted in good faith throughout, i.e., in ignorance of the first sale and of the firstbuye’1s rights, from the time of acquisition until the title is transferred to him by registration or failing registration, by delivery of possession. Facts: Sps. Prosperous and Peblia Alfaro bought a lot from Sps. Bagano through a Deed of absolute Sale on June 1995. The subject property was presently occupied by Sps. Dumalagan. Due to such circumstance and to allegedly protect their right, the Sps. Alfaro filed a petition. Spouses Dumalagan presented the notarized Deed of Absolute Sale dated December 6, 1993 and certificate, they are the real owner of a portion of the subject property, based on a notarized Deed of Absolute Sale dated December 6, 1993 and certificate of completion and a certificate of occupancy, both dated August 10,1993. Spouses Bagano filed a complaint for Declaration of nullity of Sale with Damages and Preliminary injunction against petitioners. In said case, this court sustained the validity of the Deed of Absolute Sale between petitioners and Spouses Bagano, which the appellate court reversed and set aside. According to the Appellate court, petitioners cannot claim good faith by referring to the annotations written at the back of Bagano’s title. It stated that regardless if the petitioners name was not stated in the annotated adverse claims it still have the effect of constructive notice of the defect in the seller’s title that made them as subsequent buyers. Such fact can be considered as an evidence that Sps. Alfaro had prior notice that the property they bought had prior owners. Issue: Whether or not the petitioners are considered as buyer in good faith? Ruling: No, a purchaser in good faith is one who buys the property of another without notice that some other person has a right to, or an interest in such property, and pays a full and fair price for the same at the time of such purchase, or before he has notice of some other person’s claim or interest in the property. The petitioners are not such purchaser. Petitioners , based on evidence presented, had admitted that they have prior knowledge of the previous sales by installment of portions of the property to several purchasers based on the annotation in the title. Moreover, petitioners had prior knowledge of respondents’ possession over the subject property. Hence, the rule on double sale is inapplicable in the case at bar. As correctly held by the appellate court. Petitioner’s prior registration with prior knowledge of respondents’ claim of ownership and possession, cannot confer ownership or better right over the subject property. 41. SPS. FELIPE SOLITARIOS and JULIA TORDA V SPS. GASTON JAQUE and LILIA JAQUE G.R. No. 199852; November 12, 2014 DOCTRINE: “A purported contract of sale where the vendor remains in physical possession of the land, as lessee or otherwise, is an indicium of an equitable mortgage.” FACTS: Sps. Gaston Jaque and Lilia Jaque initiated a Complaint for Ownership and Recovery of Possession against Sps. Felipe Solitarios and Julia Torda. Spouses Jacque alleged that they purchased Lot 4089 from the spouses Solitarios in stages. According to spouses Jacque, they initially bought one-half of Lot No. 4089 for 7,000.00. This sale is allegedly evidenced by a notarized Deed of Sale dated May 8, 1981. Two months later, the spouses Solitarios supposedly mortgaged the remaining half of Lot 4089 to the Jaques via a Real Estate Mortgage (REM) dated July 15, 1981, to secure a loan amounting to 3,000.00. After almost two (2) years, the spouses Solitarios finally agreed to sell the mortgaged half. However, instead of executing a separate deed of sale for the second half, they executed a Deed of Sale dated April 26, 1983 for the whole lot to save on taxes, by making it appear that the consideration for the sale of the entire lot was only 12,000.00 when the Jaques actually paid 19,000.00 in cash and condoned the spouses Solitarios’ 3,000.00 loan. As a result, the title was transferred and registered from spouses Solitarios to spouses Jaque. In spite of the sale, the Jaques, supposedly out of pity for the spouses Solitarios, allowed the latter to retain possession of Lot 4089, subject only to the condition that the spouses Solitarios will regularly deliver a portion of the property’s produce. In an alleged breach of their agreement, however, the spouses Solitarios stopped delivering any produce sometime in 2000. Worse, the spouses Solitarios even claimed ownership over Lot 4089. Thus, the Jaques filed the complaint with the RTC. For their defense, defendants spouses Solitarios “denied selling Lot 4089 and explained that they merely mortgaged the same to the Jaques after the latter helped them redeem the land from the Philippine National Bank (PNB). Issue: WON the parties entered into a contract of absolute sale or an equitable mortgage. Ruling: The Supreme Court declared that the transaction between the parties is actually one of equitable mortgage pursuant to the foregoing provisions of the Civil Code. It has never denied by respondents that the petitioners, the spouses Solitarios, have remained in possession of the subject property and exercised acts of ownership over the said lot even after the purported absolute sale of Lot 4089. This fact is immediately apparent from the testimonies of the parties and the evidence extant on record, showing that the real intention of the parties was for the transaction to secure the payment of a debt. The Court had held that a purported contract of sale where the vendor remains in physical possession of the land, as lessee or otherwise, is an indicium of an equitable mortgage. During the period material to the present controversy, the petitioners, spouses Solitarios, retained actual possession of the property. This was never disputed. If the transaction had really been one of sale, as the Jaques claim, they should have asserted their rights for the immediate delivery and possession of the lot instead of allowing the spouses Solitarios to freely stay in the premises for almost seventeen (17) years from the time of the purported sale until their filing of the complaint. Human conduct and experience reveal that an actual owner of a productive land will not allow the passage of a long period of time, as in this case, without asserting his rights of ownership. As provided for in Article 1602(6) of the Civil Code, a transaction is presumed to be an equitable mortgage “where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation.” This provision finds application in this case. “First, the very testimony of Gaston Jaque and the documents he presented establish the existence of two loans, which the Jaques extended to the spouses Solitarios, that were secured by the subject property; and, second, the testimonies of the parties reveal that they came to an agreement as to how these loans would be paid.” 42. Lopez vs. Fajardo, GR 157971, Aug. 31, 2005 By: Bautista, Kresnie Anne F. Doctrine: A month-to-month lease under Article 1687 is a lease with a definite period and expires after the last day of any given thirty-day period, upon proper demand and notice by the lessor to vacate. (ART 1687) Facts: The Sobrepenas were the owners of a 2-door apartment at Sta. Cruz, Manila. One of the apartments has for so many years been occupied under a verbal contract of lease by Fajardo. The Sobrepenas sold such property to the Lopez sisters. The Lopez sisters filed before the Metropolitan Trial Court of Manila (MeTC) a complaint for ejectment with damages, against Fajardo on the ground of failure to pay her monthly rentals from May 1999 to February 2000. This was settled after Fajardo paid P35,000.00 representing rental in arrears and current rental for June 2000. Fajardo again failed and refused to pay her July and August 2000 rentals, prompting Lopez, et al. to send her a letter informing her that they have decided to terminate their monthly lease contract effective midnight of August 31, 2000, the very time their oral lease contract shall expire and they are giving her a grace period of one (1) month within which to vacate the premises. Fajardo then remitted to Lopez, et al. a check in the amount of P30,000 representing payment of the rentals in arrears for July 2000, August 2000 and September 2000, and advance rentals for October 2000 up to July 2001 but it was not accepted by Lopez, et al. Having no settlement, Lopez, et al. filed a new complaint for ejectment and damages against Fajardo before the MeTC wherein it held that Lopez, et al. had sufficiently established their cause of action arising from the expiration of the lease contract, the lease being terminable at the end of any month after due notice, and failure of Fajardo to pay the stipulated rental which are the grounds for ejectment under Article 1673 of the Civil Code. Such was appealed by Fajardo to the RTC Manila which affirmed in toto the decision of MeTC. Fajardo appealed to the Court of Appeals which held that a minimum of 3-month arrearages is required to justify a lessor to eject a lessee and held that Fajardo had incurred back rentals of only 2 months when Lopez, et al. sent her the letter of demand hence, ―the filing of the ejectment case was premature. ISSUE: Whether or not Lopez, et al. has a valid ground for the ejectment of Fajardo Ruling: YES. A month-to-month lease under Article 1687 is a lease with a definite period and expires after the last day of any given thirty-day period, upon proper demand and notice by the lessor to vacate. Under the Rent Control Law, the prohibition against the ejectment of a lessee by his lessor is not absolute. There are exceptions expressly provided by law, which include the expiration of a lease for a definite period. In the instant case, it was noted that the rentals were paid on a month-to-month basis. Thus, the lease could be validly terminated at the end of any given month upon prior notice to that effect on the lessee. After all, when the rentals are paid monthly, the lease is deemed to be for a definite period, i.e., it expires at the end of every month. When Lopez, et al. then sent the August 18, 2000 letter to respondent informing her that the lease would be terminated effective at the end of the same month, it was well within his rights. In fine, it was error for the appellate court to ignore the fact that by the earlier-quoted August 18, 2000 letter of which was annexed as Annex “F” to the complaint, they had notified Fajardo of the expiration of the lease contract, another legal ground for judicial ejectment. SC: Court of Appeals ruling reversed. 43. Malayan Realty Inc. vs. Uy Han Yong, GR 163763, Nov. 10, 2006 By: Bernardez, Ivy Clarize Doctrine: Article 1687, Civil Code: The Courts are given discretion to fix periods for extension or shortening of a contract of lease, as well as reasonable value for use thereof. Facts: Malayan Realty Inc. is the owner of apartment unit 3013 Interior No. 90, located at Nagtahan Street, Sampaloc, Manila. In 1958, Malayan entered into a verbal lease contract with Uy over the property at a monthly rental of P262.00, which increased yearly starting 1989, and by 2001 was at P4,671.65. On July 17, 2001, Malayan sent Uy a written notice informing him that the lease contract would no longer be renewed or extended upon its expiration on August 31, 2001, and asked him to vacate and turn over the possession. On July 18, 2001, despite receipt of the notice, Uy refused to vacate the property. Thus, Malayan filed for ejectment. Issue: Whether or not there is a valid ground for extending the lease (or in the case of the respondent, shortening it from 5 years as adjudged by the RTC to 1 year only) Ruling: No. The period wherein respondent held the property during the pendency of this case is sufficient extension. The lease contract is adjudged to be from month to month since the parties did not agree on a period, and the rent was paid monthly. In the case at bar, the lease period was not agreed upon by the parties. Rental was paid monthly, and respondent has been occupying the premises since 1958. As respondent was notified in writing of the expiration of the lease, effectively his right to stay in the premises had come to an end on August 31, 2001. The 2nd paragraph of Article 1687 provides, however, that in the event that the lessee has occupied the leased premises for over a year, the courts may fix a longer term for the lease. In De Vera v. Court of Appeals, this Court found that the lessee’s continued possession of the property for more than five years from the supposed expiration of the lease sufficed as an extension of the period. In this case, respondent possessed the property from the time the complaint for ejectment was filed on September 18, 2001. Respondent’s lease has been extended for more than five years, which time is, under the circumstances, deemed sufficient as an extension and for him to find another place to stay. 44. Heirs of Jose Lim v. Lim March 3, 2010 G.R. No. 172690 Doctrine: A partnership exists when two or more persons agree to place their money, effects, labor, and skill in lawful commerce or business, with the understanding that there shall be a proportionate sharing of the profits and losses among them. The best evidence would have been the contract of partnership or the articles of partnership. Facts: Petitioners are the heirs of the late Jose Lim (Jose). They filed a Complaint for Partition, Accounting and Damages against respondent Juliet Villa Lim (respondent), widow of the late Elfledo Lim(Elfledo), who was the eldest son of Jose and Cresencia. Petitioners alleged that Jose was the liaison officer of Interwood Sawmill in Cagsiay, Mauban, and Quezon. Sometime in 1980, Jose, together with his friends Jimmy and Norberto Uy, formed a partnership to engage in the trucking business. Initially, with a contribution of P50, 000.00 each, they purchased a truck to be used in the hauling and transport of lumber of the saw mill. Jose managed the operations of this trucking business until his death. Thereafter, Jose's heirs, including Elfledo, and partners agreed to continue the business under the management of Elfledo. The shares in the partnership profits and income that formed part of the estate of Jose were held in trust by Elfledo, with petitioners' authority for Elfledo to use, purchase or acquire properties using said funds. Petitioners alleged that Elfledo was never a partner or an investor in the business and merely supervised the purchase of additional trucks using the income from the trucking business of the partners. When Elfledo died, he left respondent as his sole surviving heir. Petitioners claimed that respondent took over the administration of the aforementioned properties, which belonged to the estate of Jose, without their consent and approval. Claiming that they are co-owners of the properties, petitioners required respondent to submit an accounting of all income, profits and rentals received from the estate of Elfledo, and to surrender the administration thereof. Respondent refused; thus, the filing of this case. Respondent traversed petitioners' allegations and claimed that Elfledo was himself a partner of Norberto and Jimmy. Respondent also alleged that when Jose died in 1981, he left no known assets, and the partnership with Jimmy and Norberto ceased upon his demise. Respondent also stressed that Jose left no properties that Elfledo could have held in trust. Respondent maintained that all the properties involved in this case were purchased and acquired through her and her husband‘s joint efforts and hard work, and without any participation or contribution from petitioners or from Jose. Issue: WON a partnership exist, and who between Elfledo and Jose is the partner. Ruling: YES. A partnership exists when two or more persons agree to place their money, effects, labor, and skill in lawful commerce or business, with the understanding that there shall be a proportionate sharing of the profits and losses among them. A contract of partnership is defined by the Civil Code as one where two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves. The following circumstances tend to prove that Elfledo was himself the partner of Jimmy and Norberto: 1) Cresencia testified that Jose gave Elfledo P50,000.00, as share in the partnership, on a date that coincided with the payment of the initial capital in the partnership; (2) Elfledo ran the affairs of the partnership, wielding absolute control, power and authority, without any intervention or opposition whatsoever from any of petitioners herein; (3) all of the properties were registered in the name of Elfledo;(4) Jimmy testified that Elfledo did not receive wages or salaries from the partnership, indicating that what he actually received were shares of the profits of the business; and (5) none of the petitioners, as heirs of Jose, the alleged partner, demanded periodic accounting from Elfledo during his lifetime. As stated in Heirs of Tan Eng Kee case, a demand for periodic account is evidence of a partnership. 45. Tacao and Belo vs CA, G.R. No. 127405, October 4, 2000 By: Bustamante, Anne Murphy Doctrine: To be considered a juridical personality, a partnership must fulfill these requisites: (1) two or more persons bind themselves to contribute money, property or industry to a common fund; and (2) intention on the part of the partners to divide the profits among themselves. It may be constituted in any form; a public instrument is necessary only where immovable property or real rights are contributed thereto. This implies that since a contract of partnership is consensual, an oral contract of partnership is as good as a written one. Where no immovable property or real rights are involved, what matters is that the parties have complied with the requisites of a partnership. Facts: Fresh from her stint as marketing adviser of Technolux in Bangkok, Thailand, private respondent Nenita A. Anay met petitioner William T. Belo, through her former employer in Bangkok. Belo introduced Anay to petitioner Marjorie Tocao, who conveyed her desire to enter into a joint venture with her for the importation and local distribution of kitchen cookwares. Belo volunteered to finance the joint venture and assigned to Anay the job of marketing the product considering her experience and established relationship with West Bend Company, a manufacturer of kitchen wares in Wisconsin, U.S.A. Under the joint venture, Belo acted as capitalist, Tocao as president and general manager, and Anay as head of the marketing department and later, vice-president for sales. Anay organized the administrative staff and sales force while Tocao hired and fired employees, determined commissions and/or salaries of the employees, and assigned them to different branches. The parties agreed that Belo’s name should not appear in any documents relating to their transactions with West Bend Company. Instead, they agreed to use Anay’s name in securing distributorship of cookware from that company. The parties agreed further that Anay would be entitled to: (1) ten percent (10%) of the annual net profits of the business; (2) overriding commission of six percent (6%) of the overall weekly production; (3) thirty percent (30%) of the sales she would make; and (4) two percent (2%) for her demonstration services. The agreement was not reduced to writing on the strength of Belo’s assurances that he was sincere, dependable and honest when it came to financial commitments. Anay having secured the distributorship of cookware products from the West Bend Company and organized the administrative staff and the sales force, the cookware business took off successfully. They operated under the name of Geminesse Enterprise, a sole proprietorship registered in Marjorie Tocaos name, with office at 712 Rufino Building, Ayala Avenue, Makati City. Belo made good his monetary commitments to Anay. On October 9, 1987, Anay learned that Marjorie Tocao had signed a letter addressed to the Cubao sales office to the effect that she was no longer the vice-president of Geminesse Enterprise. The following day, she received a note from Lina T. Cruz, marketing manager, that Marjorie Tocao had barred her from holding office and conducting demonstrations in both Makati and Cubao offices. Anay attempted to contact Belo. She wrote him twice to demand her overriding commission for the period of January 8, 1988 to February 5, 1988 and the audit of the company to determine her share in the net profits. When her letters were not answered, Anay consulted her lawyer, who, in turn, wrote Belo a letter. Still, that letter was not answered. Anay still received her five percent (5%) overriding commission up to December 1987. The following year, 1988, she did not receive the same commission. Nenita A. Anay filed a complaint for sum of money with damages against Marjorie D. Tocao and William Belo before the Regional Trial Court of Makati. In her complaint, Anay prayed that defendants be ordered to pay her, jointly and severally, the following: (1) P32,00.00 as unpaid overriding commission from January 8, 1988 to February 5, 1988; (2) P100,000.00 as moral damages, and (3) P100,000.00 as exemplary damages. The plaintiff also prayed for an audit of the finances of Geminesse Enterprise from the inception of its business operation until she was illegally dismissed to determine her ten percent (10%) share in the net profits. She further prayed that she be paid the five percent (5%) overriding commission on the remaining 150 West Bend cookware sets before her dismissal. In their answer, Marjorie Tocao and Belo asserted that the alleged agreement with Anay that was neither reduced in writing, nor ratified, was either unenforceable or void or inexistent. As far as Belo was concerned, his only role was to introduce Anay to Marjorie Tocao. There could not have been a partnership because, as Anay herself admitted, Geminesse Enterprise was the sole proprietorship of Marjorie Tocao. Because Anay merely acted as marketing demonstrator of Geminesse Enterprise for an agreed remuneration, and her complaint referred to either her compensation or dismissal, such complaint should have been lodged with the Department of Labor and not with the regular court. RTC held there was indeed an oral partnership agreement between the plaintiff and the defendants, based on the following: (a) there was an intention to create a partnership; (b) a common fund was established through contributions consisting of money and industry, and (c) there was a joint interest in the profits. The trial court further held that the payment of commissions did not preclude the existence of the partnership inasmuch as such practice is often resorted to in business circles as an impetus to bigger sales volume. It did not matter that the agreement was not in writing because Article 1771 of the Civil Code provides that a partnership may be constituted in any form. The fact that Geminesse Enterprise was registered in Marjorie Tocaos name is not determinative of whether or not the business was managed and operated by a sole proprietor or a partnership. What was registered with the Bureau of Domestic Trade was merely the business name or style of Geminesse Enterprise. The trial court finally held that a partner who is excluded wrongfully from a partnership is an innocent partner. Hence, the guilty partner must give him his due upon the dissolution of the partnership as well as damages or share in the profits realized from the appropriation of the partnership business and goodwill. An innocent partner thus possesses pecuniary interest in every existing contract that was incomplete and in the trade name of the co-partnership and assets at the time he was wrongfully expelled. Petitioners’ appeal to the CA was dismissed. Issue/s: Whether a partnership existed between the petitioners and private respondent Anay. Ruling: Yes. The issue of whether or not a partnership exists is a factual matter which are within the exclusive domain of both the trial and appellate courts. In this case, both the trial court and the Court of Appeals are one in ruling that petitioners and private respondent established a business partnership. This Court finds no reason to rule otherwise. To be considered a juridical personality, a partnership must fulfill these requisites: (1) two or more persons bind themselves to contribute money, property or industry to a common fund; and (2) intention on the part of the partners to divide the profits among themselves. It may be constituted in any form; a public instrument is necessary only where immovable property or real rights are contributed thereto. This implies that since a contract of partnership is consensual, an oral contract of partnership is as good as a written one. Where no immovable property or real rights are involved, what matters is that the parties have complied with the requisites of a partnership. The fact that there appears to be no record in the Securities and Exchange Commission of a public instrument embodying the partnership agreement pursuant to Article 1772 of the Civil Code did not cause the nullification of the partnership. The pertinent provision of the Civil Code on the matter states: Art. 1768. The partnership has a juridical personality separate and distinct from that of each of the partners, even in case of failure to comply with the requirements of article 1772, first paragraph. Petitioners admit that private respondent had the expertise to engage in the business of distributorship of cookware. Private respondent contributed such expertise to the partnership and hence, under the law, she was the industrial or managing partner. It was through her reputation with the West Bend Company that the partnership was able to open the business of distributorship of that company’s cookware products; it was through the same efforts that the business was propelled to financial success. Petitioner Tocao herself admitted private respondents indispensable role in putting up the business when, upon being asked if private respondent held the positions of marketing manager and vice-president for sales. By the set-up of the business, third persons were made to believe that a partnership had indeed been forged between petitioners and private respondents. The business venture operated under Geminesse Enterprise did not result in an employer-employee relationship between petitioners and private respondent. While it is true that the receipt of a percentage of net profits constitutes only prima facie evidence that the recipient is a partner in the business, the evidence in the case at bar controverts an employeremployee relationship between the parties. In the first place, private respondent had a voice in the management of the affairs of the cookware distributorship, including selection of people who would constitute the administrative staff and the sales force. Secondly, petitioner Tocaos admissions militate against an employer-employee relationship. She admitted that, like her who owned Geminesse Enterprise, private respondent received only commissions and transportation and representation allowances and not a fixed salary. Undoubtedly, petitioner Tocao unilaterally excluded private respondent from the partnership to reap for herself and/or for petitioner Belo financial gains resulting from private respondents efforts to make the business venture a success. Thus, as petitioner Tocao became adept in the business operation, she started to assert herself to the extent that she would even shout at private respondent in front of other people. Her instruction to Lina Torda Cruz, marketing manager, not to allow private respondent to hold office in both the Makati and Cubao sales offices concretely spoke of her perception that private respondent was no longer necessary in the business operation, and resulted in a falling out between the two. However, a mere falling out or misunderstanding between partners does not convert the partnership into a sham organization. The partnership exists until dissolved under the law. Since the partnership created by petitioners and private respondent has no fixed term and is therefore a partnership at will predicated on their mutual desire and consent, it may be dissolved by the will of a partner. Thus: x x x. The right to choose with whom a person wishes to associate himself is the very foundation and essence of that partnership. Its continued existence is, in turn, dependent on the constancy of that mutual resolve, along with each partners capability to give it, and the absence of cause for dissolution provided by the law itself. Verily, any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership at will. He must, however, act in good faith, not that the attendance of bad faith can prevent the dissolution of the partnership but that it can result in a liability for damages. An unjustified dissolution by a partner can subject him to action for damages because by the mutual agency that arises in a partnership, the doctrine of delectus personae allows the partners to have the power, although not necessarily the right to dissolve the partnership. In this case, petitioner Tocaos unilateral exclusion of private respondent from the partnership is shown by her memo to the Cubao office plainly stating that private respondent was, as of October 9, 1987, no longer the vice-president for sales of Geminesse Enterprise. By that memo, petitioner Tocao effected her own withdrawal from the partnership and considered herself as having ceased to be associated with the partnership in the carrying on of the business. Nevertheless, the partnership was not terminated thereby; it continues until the winding up of the business. 46. HEIRS OF TAN ENG KEE VS. COURT OF APPEALS, 341 SCRA 740. October 3, 2000 Doctrine: A contract of partnership is defined by law as one where: x x x two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves. Two or more persons may also form a partnership for the exercise of a profession. Thus, in order to constitute a partnership, it must be established that (1) two or more persons bound themselves to contribute money, property, or industry to a common fund, and (2) they intend to divide the profits among themselves. The agreement need not be formally reduced into writing, since statute allows the oral constitution of a partnership, save in two instances: (1) when immovable property or real rights are contributed, and (2) when the partnership has a capital of three thousand pesos or more. In both cases, a public instrument is required. An inventory to be signed by the parties and attached to the public instrument is also indispensable to the validity of the partnership whenever immovable property is contributed to the partnership. By: Norhaisah A. Calbe FACTS: •After the Second World War, Tan Eng Kee and Tan Eng Lay, pooling their resources and industry together, entered into a partnership engaged in the business of selling lumber and hardware and construction supplies and named their enterprise "Benguet Lumber" which they jointly managed until Tan Eng Kee's death. •They claimed, however, that in 1981, Tan Eng Lay and his children caused the conversion of the partnership "Benguet Lumber" into a corporation called "Benguet Lumber Company." The incorporation was purportedly a ruse to deprive Tan Eng Kee and his heirs of their rightful participation in the profits of the business. •Petitioners prayed for accounting of the partnership assets, and the dissolution, winding up and liquidation thereof, and the equal division of the net assets of Benguet Lumber. •The RTC ruled in favor of the petitioner. •Tan Eng Lay filed a petition in the CA claiming that o there was no partnership between him and his brother as there was no certificate of partnership, agreements, or other evidence of the partnership's existence. o Tan Eng Kee was merely an employee of Benguet Lumber as shown in copies of his payroll and SSS, which states that he was an employee of the same. •The heirs of Tan Eng Kee then filed a criminal case against Tan Eng Lay on the ground of fabricating the said evidence presented as they contradictory. The criminal case was dismissed for lack of merit. ISSUE: Whether the two brothers were partners in Benguet Lumber Co. RULING: No, Tan Eng Kee was not a partner to Benguet Lumber was merely an employee of the same. There being no partnership, there is no dissolution, winding up or liquidation. Under Article 1767 of the Civil Code, by contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common fund with the intention of diving the profits among themselves. In the case present, there was no evidence to show that the brothers had an agreement of sharing profits or any contribution of money, property and industry. As further stated in Article 1769 paragraph 4, The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but no such inference shall be drawn if such profits were received in payment: (a) As a debt by installment or otherwise; (b) As wages of an employee or rent to a landlord; (c) As an annuity to a widow or representative of a deceased partner; (d) As interest on a loan, though the amount of payment vary with the profits of the business; (e) As the consideration for the sale of a goodwill of a business or other property by installments or otherwise. Tan Eng Kee, in his lifetime never executed any acts which would indicate that he was a partner. a.He never demanded for periodic accountings of the common fund, which would be expected of a real partner; b.He never received any shares in the profits of Benguet Lumber, he only received salary as evidenced by the payroll documents presented by Tan Eng Lay; c.The Heirs were unable to prove that the brothers intended to divide the profits of the business between themselves. Even if Tan Eng Kee was granted certain privileges not given to regular employees, (such as being allowed to live with his family on the grounds of the Lumber Compound, and having supervisory powers over the regular employees) the Court found that these privileges were a result of being related to the owner of the company and not because he was a partner. Tan Eng Kee never represented himself as a partner to any third person his actions, when he was alive, taken together with how his brother treated him, strongly indicate that he was NOT a partner. Article 1825 is meant to protect third persons who were misled by a person acting as a partner even if he really isn’t. Since Tan Eng Kee never represented himself as a partner, and there is no evidence or documentation of him being a partner, then he is not a partner. 48. Cosmic Lumber Corp. vs. CA, GR No. 114311, Nov. 29, 2996 By: Cristobal, Ma. Corazon M. Doctrine: Where the agent is committing fraud, it would be contrary to assume or expect that he would communicate the facts to the principal. When an agent is engaged in the perpetuation of a fraud upon his principal for his own exclusive benefit, he is not really acting for the principal but is really acting for himself, entirely outside the scope of his agency. FACTS: Cosmic Lumber Corporation through its General Manager executed a Special Power of Attorney appointing Paz Estrada (AGENT) as attorney-in-fact to initiate, institute and file any court action for ejectment of third persons and/or squatters and vacate the premises in order that the corporation may take material possession of the lot, and to enter into compromise agreement so far as it shall protect the rights and interest of the corporation in the subject lot. Paz Estrada (AGENT) entered into a Compromise Agreement with respondent Perez. The contents of the Compromise Agreement was approved by the trial court and judgment was rendered in accordance therewith. Petitioner sought annulment of the decision of the trial court before the CA in the ground that the compromise agreement was void because: a) the attorney-in-fact did not have the authority to dispose of, sell, encumber or divest the plaintiff of its ownership over its real property or any portion thereof; b) the authority of the attorney-in-fact was confined to the institution and filing an ejectment case against third persons/squatters on the property and cause eviction therefrom; c) while the special power of attorney made mention of an authority to enter a compromise agreement, such authority is in connection and limited to eviction of third persons, in order that the corporation may take material possession of the entire lot and d) the private defendant acted in bad faith in the execution of the said agreement knowing fully well the want of authority of the attorney-in-fact to sell, encumber or dispose of the real property of the plaintiff. ISSUE: Whether the compromise agreement entered into by an attorney without specific authority from the client is void? RULING: Yes. Paz Estrada (agent) who signed the compromise agreement may have been the attorney-in-fact but she could not legally bind petitioner thereto as she was not entrusted with a special authority to sell the land, as required in Art. 1878, Par. (5) of the Civil Code. It may argued that petitioner knew of the compromise agreement since the principal is chargeable with and bound by knowledge of or notice to his agent received while the agent was acting as such. But the general rule is intended to protect those who exercise good faith and not as a shield for unfair dealing. There is established exception that where the conduct and dealings of the agent are such as to raise a clear presumption that he will not communicate to the principal the facts of the controversy. The reason for the said exception is that where the agent is committing fraud, it would be contrary to assume or expect that he would communicate the facts to the principal. When an agent is engaged in the perpetuation of a fraud upon his principal for his own exclusive benefit, he is not really acting for the principal but is really acting for himself, entirely outside the scope of his agency. Indeed, the basic tenets of agency rest on the highest considerations of justice, equity and fair play, and an agent will not be permitted to pervert his authority to his own personal advantage, and his act in secret hostility to the interests of his principal transcends the power afforded him. 49. GENEVIEVE LIM v. FLORENCIO SABAN FACTS: The late Eduardo Ybaez (Ybaez), the owner of a 1,000-square meter lot in Cebu City (the lot), entered into an Agreement and Authority to Negotiate and Sell (Agency Agreement) with respondent Florencio Saban (Saban). Under the Agency Agreement, Ybaez authorized Saban to look for a buyer of the lot for Two Hundred Thousand Pesos (P200,000.00) and to mark up the selling price to include the amounts needed for payment of taxes, transfer of title and other expenses incident to the sale, as well as Sabans commission for the sale. Through Sabans efforts, Ybaez and his wife were able to sell the lot to the petitioner Genevieve Lim (Lim) and the spouses Benjamin and Lourdes Lim (the Spouses Lim). The price of the lot as indicated in the Deed of A b s o l u t e S a l e i s Tw o H u n d r e d T h o u s a n d P e s o s (P200,000.00). It appears, however, that the vendees agreed to purchase the lot at the price of Six Hundred Thousand Pesos (P600,000.00), inclusive of taxes and other incidental expenses of the sale. After the sale, Lim remitted to Saban the amounts of One Hundred Thirteen Thousand Two Hundred Fifty Seven Pesos (P113,257.00) for payment of taxes due on the transaction as well as Fifty Thousand Pesos (P50,000.00) as brokers commission. Lim also issued in the name of Saban four postdated checks in the aggregate amount of Two Hundred Thirty Six Thousand Seven Hundred Forty Three Pesos (P236,743.00). Subsequently, Ybaez sent a letter dated June 10, 1994 addressed to Lim. In the letter Ybaez asked Lim to cancel all the checks issued by her in Sabans favor and to extend another partial payment for the lot in his (Ybaezs) favor. After the four checks in his favor were dishonored upon presentment, Saban filed a Complaint for collection of sum of money and damages against Ybaez and Lim with the Regional Trial Court (RTC) of Cebu City. Respondent’s Contention (Saban) - alleged that Ybaez told Lim that he (Saban) was not entitled to any commission for the sale since he concealed the actual selling price of the lot from Ybaez and because he was not a licensed real estate broker. Ybaez was able to convince Lim to cancel all four checks. Saban further averred that Ybaez and Lim connived to deprive him of his sales commission by withholding payment of the first three checks. He also claimed that Lim failed to make good the fourth check which was dishonored because the account against which it was drawn was closed. Petitioner’s Contention (Lim) - Ybaez claimed that Saban was not entitled to any commission because he concealed the actual selling price from him and because he was not a licensed real estate broker. Lim, for her part, argued that she was not privy to the agreement between Ybaez and Saban, and that she issued stop payment orders for the three checks because Ybaez requested her to pay the purchase price directly to him, instead of coursing it through Saban. She also alleged that she agreed with Ybaez that the purchase price of the lot was only P200,000.00. ISSUE: Whether Saban is entitled to receive his commission from the sale based on their Contract of Agency. RULING: YES. The Court affirms the appellate courts finding that the agency was not revoked since Ybaez requested that Lim make stop payment orders for the checks payable to Saban only after the consummation of the sale on March 10, 1994. At that time, Saban had already performed his obligation as Ybaezs agent when, through his (Sabans) efforts, Ybaez executed the Deed of Absolute Sale of the lot with Lim and the Spouses Lim. To deprive Saban of his commission subsequent to the sale which was consummated through his efforts would be a breach of his contract of agency with Ybaez which expressly states that Saban would be entitled to any excess in the purchase price after deducting the P200,000.00 due to Ybaez and the transfer taxes and other incidental expenses of the sale. Moreover, the contract of agency very clearly states that Saban is entitled to the excess of the mark-up of the price of the lot after deducting Ybaezs share of P200,000.00 and the taxes and other incidental expenses of the sale. As regards the issue of Saban’s agency with interest However, the Court does not agree with the appellate courts pronouncement that Sabans agency was one coupled with an interest. Under Article 1927 of the Civil Code, an agency cannot be revoked if a bilateral contract depends upon it, or if it is the means of fulfilling an obligation already contracted, or if a partner is appointed manager of a partnership in the contract of partnership and his removal from the management is unjustifiable. Stated differently, an agency is deemed as one coupled with an interest where it is established for the mutual benefit of the principal and of the agent, or for the interest of the principal and of third persons, and it cannot be revoked by the principal so long as the interest of the agent or of a third person subsists. In an agency coupled with an interest, the agents interest must be in the subject matter of the power conferred and not merely an interest in the exercise of the power because it entitles him to compensation. When an agents interest is confined to earning his agreed compensation, the agency is not one coupled with an interest, since an agents interest in obtaining his compensation as such agent is an ordinary incident of the agency relationship. 50. MANILA MEMORIAL PARK CEM. INC. VS LINSANGAN, GR 15139,NOV 22, 2004 FACTS: Florencia Baluyot offered Atty. Pedro L. Linsangan a lot called Garden State at the Holy Cross Memorial Park owned by petitioner (MMPCI). According to Baluyot, a former owner of a memorial lot was no longer interested in acquiring the lot and had opted to sell his rights subject to reimbursement of the amounts he already paid. Linsangan agreed to buy the lot and issued checks to Baluyot. Baluyot verbally advised Atty. Linsangan that Contract No. 28660 was cancelled for reasons the latter could not explain, and presented to him another proposal for the purchase of an equivalent property. He refused the new proposal and insisted that Baluyot and MMPCI honor their undertaking. For the alleged failure of MMPCI and Baluyot to conform to their agreement, Atty. Linsangan filed a Complaint for Breach of Contract and Damages against the former. MMPCI alleged that Baluyot was not an agent but an independent contractor, and as such was not authorized to represent MMPCI or to use its name except as to the extent expressly stated in the Agency Manager Agreement. ISSUE: 1. Whether or not there is a contract of agency between Baluyot and the petitioner. 2. Whether or not the petitioner is bound by the act of the agent. HELD: 1. YES, Baluyot was an agent of MMPCI, having represented the interest of the latter, and having been allowed by MMPCI to represent it in her dealings with its clients/ prospective buyers. By the contract of agency, a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter. Thus, the elements of agency are (i) consent, express or implied, of the parties to establish the relationship; (ii) the object is the execution of a juridical act in relation to a third person; (iii) the agent acts as a representative and not for himself; and (iv) the agent acts within the scope of his authority. 2. NO, the petitioner is not bound by the act of his agent. Thus, the acts of an agent beyond the scope of his authority do not bind the principal, unless he ratifies them, expressly or impliedly. Only the principal can ratify; the agent cannot ratify his own unauthorized acts. Moreover, the principal must have knowledge of the acts he is to ratify. Ratification in agency is the adoption or confirmation by one person of an act performed on his behalf by another without authority. The substance of the doctrine is confirmation after conduct, amounting to a substitute for a prior authority. Ordinarily, the principal must have full knowledge at the time of ratification of all the material facts and circumstances relating to the unauthorized act of the person who assumed to act as agent. Thus, if material facts were suppressed or unknown, there can be no valid ratification and this regardless of the purpose or lack thereof in concealing such facts and regardless of the parties between whom the question of ratification may arise. 51. Spouses Chua vs. Msgr. Soriano, G.R. No. 150066, April 13, 2007 By: Ferrer, Marrion Jade Doctrine: Documents acknowledged before a notary public have the evidentiary weight with respect to their due execution and regularity. Facts: Msgr. Virgilio C. Soriano (Soriano) owned a 1,600 square meter parcel of land located in Barangay Banlat, Quezon City, covered by Transfer Certificate of Title No. 363471 of the Registry of Deeds, Quezon City. Sometime in the early months of 1988, Soriano’s first cousin and godson, Emmanuel C. Celestino, Sr. (Celestino) asked Soriano to lend him the TCT as a security for a loan to be used in the business operation of Celestino’s company, Digital Philippines, Inc. Acceding to Celestino’s request, Soriano executed a Special Power of Attorney (SPA) authorizing Celestino to mortgage said property. Then came the June 11, 1988 fire that gutted a portion of the Quezon City Hall and destroyed in the process the original copy of TCT on file with the Registry of Deeds of Quezon City. Soriano executed a SPA authorizing Celestino and one Carlito Castro to initiate administrative reconstitution proceedings of TCT No. 363471. Thereafter, a reconstituted title, TCT No. RT-3611 (363471) PR 1686, was issued. During the pendency of the administrative reconstitution proceedings, Soriano asked Celestino whether there was any truth to the spreading rumor that he had already sold the subject property. Celestino denied the rumor but informed Soriano that the subject property was mortgaged with a foreign bank. Dissatisfied with Celestino's explanation, Soriano made inquiries with the Registry of Deeds of Quezon City and discovered, to his dismay, that the TCT had been canceled by TCT No. 14514 in the name of spouses Emmanuel and Edna Chua and spouses Manuel and Maria Chua (Chuas). By virtue of a SPA dated March 9, 1989 with Soriano's purported signature, Celestino sold to the Chuas the property in an Absolute Deed of Sale dated July 4, 1989 for ₱500,000.00. Claiming that his signature in the SPA is a forgery, Soriano filed a complaint against Celestino and the Chuas for annulment of deed of sale and special power of attorney, cancellation of title and reconveyance with damages. The defense of Celestino is that he was duly authorized to sell the property while the Chuas contend that they are purchasers in good faith since they bought the property from Celestino by virtue of a SPA which was duly inscribed and annotated on the owner's duplicate of the TCT and the tax declaration and that they have duly inspected the property before purchasing it. Soriano died during the pendency of the trial. He was substituted by his sister, Florencia Celestino Soriano, also known as Sister Mary Virgilia Celestino Soriano (Sis. Soriano). Issue/s: WON based on the SPA, Celestino was duly authorized to sell the property, thus making the Chuas purchasers in good faith? Ruling: YES. Celestino was duly authorized. When the document under scrutiny is a special power of attorney that is duly notarized, we know it to be a public document where the notarial acknowledgment is prima facie evidence of the fact of its due execution. A purchaser presented with such a document would have no choice between knowing and finding out whether a forger lurks beneath the signature on it. The notarial acknowledgment has removed the choice from him and replaced it with a presumption sanctioned by law that the affiant appeared before the notary public and acknowledged that he executed the document, understood its import and signed it. In reality, he is deprived of such choice not because he is incapable of knowing and finding out but because, under our notarial system, he has been given the luxury of merely relying on the presumption of regularity of a duly notarized SPA. And he cannot be faulted for that because it is precisely that fiction of regularity which holds together commercial transactions across borders and time. (Bautista vs. Silva) An examination of the assailed SPA shows that it is valid and regular on its face. It contains a notarial seal. A notarial seal is a mark, image or impression on a document which would indicate that the notary public has officially signed it. The long-standing rule is that documents acknowledged before a notary public have the evidentiary weight with respect to their due execution and regularity. The assailed SPA is a notarized document and therefore, presumed to be valid and duly executed. Thus, the reliance by the Chuas on the notarial acknowledgment found in the duly notarized SPA presented by Celestino is sufficient evidence of good faith. The Chuas need not prove anything more for it is already the function of the notarial acknowledgment to establish the appearance of the parties to the document, its due execution and authenticity. Moreover, the SPA was accepted by the Register of Deeds. It was registered with the Registry of Deeds of Quezon City and inscribed and annotated in the owner's duplicate title, further bolstering the appearance of due execution and regularity. The fact that Soriano's purported signature in the SPA dated March 9, 1989 was declared to be a forgery does not alter the Chuas’ status as purchasers in good faith. 52. PATRIMONIO vs. GUTIERREZ, et al., GR 187769, June 4, 2014 By: Ferreras, Marjorie Doctrine: Article 1868 of the Civil Code defines a contract of agency as a contract whereby a person "binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter." Facts: The petitioner and the respondent Napoleon Gutierrez (Gutierrez) entered into a business venture under the name of Slam Dunk Corporation (Slum Dunk). In the course of their business, the petitioner pre-signed several checks to answer for the expenses of Slam Dunk. Although signed, these checks had no payee’s name, date or amount. The blank checks were entrusted to Gutierrez with the specific instruction not to fill them out without previous notification to and approval by the petitioner. According to petitioner, the arrangement was made so that he could verify the validity of the payment and make the proper arrangements to fund the account. Without the petitioner’s knowledge and consent, Gutierrez went to Marasigan (the petitioner’s former teammate), to secure a loan in the amount of ₱200,000.00 on the excuse that the petitioner needed the money for the construction of his house, with an interest of 5% per month. Marasigan acceded to Gutierrez’ request. When Marasigan deposited the check but it was dishonored for the reason "ACCOUNT CLOSED." Marasigan sought recovery from Gutierrez, to no avail. He thereafter sent several demand letters to the petitioner, but his demands likewise went unheeded. Consequently, he filed a criminal case for violation of B.P. 22 against the petitioner. RTC ruled in favor of Marasigan. It found that the petitioner, in issuing the pre-signed blank checks, had the intention of issuing a negotiable instrument, albeit with specific instructions to Gutierrez not to negotiate or issue the check without his approval. CA affirmed the RTC ruling, although premised on different factual findings. CA held that Marasigan is not a holder in due course as he did not receive the check in good faith. Issue: WON petitioner should be liable to the contract of loan. Ruling: No. There is no contract of agency between petitioner and Gutierrez. Contracts of Agency May be Oral Unless The Law Requires a Specific Form. Agency may be express, or implied from the acts of the principal, from his silence or lack of action, or his failure to repudiate the agency, knowing that another person is acting on his behalf without authority. As a general rule, a contract of agency may be oral. However, it must be written when the law requires a specific form, for example, in a sale of a piece of land or any interest therein through an agent. The Contract of Loan Entered Into by Gutierrez in Behalf of the Petitioner Should be Nullified for Being Void; Petitioner is Not Bound by the Contract of Loan. Here, Gutierrez did not have any authority to borrow money in behalf of the petitioner. Records do not show that the petitioner executed any special power of attorney (SPA) in favor of Gutierrez. 54. Sun Life of Canada (Phils) Inc. v. Sandra Tan Kit, et.al, G.R. No. 183272, October 15, 2004 By: Javier, Elojra Carmiel D. DOCTRINE: Compensatory interest is defined as penalty or indemnity for damages imposed by law or by the courts under the Article 2209 and 2212 of the Civil Code and is due only if the obligor is proven to have failed to comply with his obligation. FACTS: Respondent Tan Kit is the widow and designated beneficiary of Norberto Tan Kit, whose application for a life insurance policy with a face value of Php 300,000 was granted by the Petitioner Sun Life on October 28, 1999. On February 19, 2001, or within the constestability period, Norberto died of cancer and the respondent filed a claim under the subject policy. However the petitioner denied the claim on the account of Norberto's failure to fully and faithfully disclose in his insurance application certain material and relevant information about his health and smoking history as Norberto answered no regarding smoking for the last 12 months. The petitioner opined that its liability is limited to the refund of all premiums paid and issued a check worth Php 13,080.93 representing the premium refund. Respondent Tan Kit refused to accept the check and insisted on the payment of the insurance proceeds. The RTC ruled in favor of the respondent and ordered the payment of the face value of Php 300,000 however the CA reversed the said ruling and ordered the reimbursement of the premium refund worth Php 13,080.93 with an interest of 12% per annum from the time of the death of the insured until fully paid. ISSUE/S: Whether or not the petitioner is liable to pay interest on the premium to be refunded to the respondents? RULING: No, the petitioner is not liable to pay compensatory interest to the respondent Tan Kit. The petitioner did not unreasonably deny or withhold the insurance proceeds as it was satisfactorily established that Norberto was guilty of concealment. The court defines compensatory interest as penalty or indemnity for damages imposed by law or by the courts under the Article 2209 and 2212 of the Civil Code and is due only if the obligor is proven to have failed to comply with his obligation. In this case, the CA incorrectly imposed compensatory interest on the premium refund reckoned from the time of death of the insured until fully paid. The respondents were given notice that the subject policy was rescinded due to concealment and the petitioner tendered the refund of premium by attaching a check representing the refund. However, the respondent refused to accept the same as they were seeking for the release of the proceeds of the policy.The court finds that the petitioner did not incur delay or unjustifiably deny the claim hence should not be made liable to pay compensatory interest. 55. CA AGRO INDUSTRIAL DEVELOPMENT CORP. VS CA, GR. 90027 By: Marianne Jalotjot Doctrine: The Contract for the rent of the safety deposit is a special kind of deposit. It cannot be characterized as an ordinary contract of lease under Article 1643 because the full and absolute possession and control of the safety deposit box was not given to the joint renters. Facts: Petitioner CA and Spouses Pugao entered into an agreement whereby the former will purchased from the latter two (2) parcels of land. Among the terms and conditions of the agreement embodied in a Memorandum were that the titles to the lots shall be transferred to the petitioner upon full payment of the purchase price and that the owner's copies of the certificates of titles shall be deposited in a safety deposit box of any bank. The same could be withdrawn only upon the joint signatures of a representative of the petitioner and the Pugaos upon full payment of the purchase price. Petitioner and the Pugaos then rented Safety Deposit Box No. 1448 of private respondent Security Bank and Trust Company. For this purpose, both signed a contract of lease which contains, inter alia, the following conditions: 13. The bank is not a depositary of the contents of the safe and it has neither the possession nor control of the same. 14. The bank has no interest whatsoever in said contents, except herein expressly provided, and it assumes absolutely no liability in connection therewith. After the execution of the contract, two (2) renter's keys were given to the renters — one to Aguirre (for the petitioner) and the other to the Pugaos. A guard key remained in the possession of the respondent Bank. The safety deposit box has two (2) keyholes, one for the guard key and the other for the renter's key, and can be opened only with the use of both keys. Petitioner claims that the certificates of title were placed inside the said box. Thereafter, a certain Mrs. Margarita Ramos offered to buy from the petitioner the two (2) lots which will translates to a huge profit. Mrs. Ramos demanded the execution of a deed of sale which necessarily entailed the production of the certificates of title. In view thereof, Aguirre, accompanied by the Pugaos, then proceeded to the respondent Bank on 4 October 1979 to open the safety deposit box and get the certificates of title. However, when opened in the presence of the Bank's representative, the box yielded no such certificates. Because of the delay in the reconstitution of the title, Mrs. Ramos withdrew her earlier offer to purchase the lots; as a consequence thereof, the petitioner allegedly failed to realize the expected profit. Hence, the latter filed on 1 September 1980 a complaint for damages against the respondent Bank with the RTC. In its Answer with Counterclaim, respondent Bank alleged that the petitioner has no cause of action because of paragraphs 13 and 14 of the contract of lease corollarily, loss of any of the items or articles contained in the box could not give rise to an action against it. The RTC dismissed the Petition and concluded that under paragraphs 13 and 14 of the contract of lease, the Bank has no liability for the loss of the certificates of title. The court declared that the said provisions are binding on the parties. CA affirmed the appealed decision principally on the theory that the contract executed by the petitioner and respondent Bank is in the nature of a contract of lease by virtue of which the petitioner and its co-renter were given control over the safety deposit box and its contents while the Bank retained no right to open the said box because it had neither the possession nor control over it and its contents. Also, it invoked Tolentino vs. Gonzales — which held that the owner of the property loses his control over the property leased during the period of the contract . Petitioner maintains that regardless of nomenclature, the contract for the rent of the safety deposit box is actually a contract of deposit. Accordingly, it is claimed that the respondent Bank is liable for the loss of the certificates of title pursuant to Article 1972. Petitioner further argues that conditions 13 and 14 of the questioned contract are contrary to law and public policy and should be declared null and void. In support thereof, it cites Article 1306 of the Civil Code. Issue: Whether the contract for the rent of the safety deposit box is an ordinary contract of lease Ruling: NO. We agree with the petitioner's contention that the contract for the rent of the safety deposit box is not an ordinary contract of lease as defined in Article 1643 of the Civil Code. However, We do not fully subscribe to its view that the same is a contract of deposit that is to be strictly governed by the provisions in the Civil Code on deposit; the contract in the case at bar is a special kind of deposit. It cannot be characterized as an ordinary contract of lease under Article 1643 because the full and absolute possession and control of the safety deposit box was not given to the joint renters — the petitioner and the Pugaos. The guard key of the box remained with the respondent Bank; without this key, neither of the renters could open the box. On the other hand, the respondent Bank could not likewise open the box without the renter's key. In this case, the said key had a duplicate which was made so that both renters could have access to the box. We agree with the petitioner that under the latter, the prevailing rule is that the relation between a bank renting out safe-deposit boxes and its customer with respect to the contents of the box is that of a bail or and bailee, the bailment being for hire and mutual benefit. Note that the primary function is still found within the parameters of a contract of deposit, i.e., the receiving in custody of funds, documents and other valuable objects for safekeeping. The renting out of the safety deposit boxes is not independent from, but related to or in conjunction with, this principal function. A contract of deposit may be entered into orally or in writing and, pursuant to Article 1306 of the Civil Code, the parties thereto may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy. The depositary's responsibility for the safekeeping of the objects deposited in the case at bar is governed by Title I, Book IV of the Civil Code. Accordingly, the depositary would be liable if, in performing its obligation, it is found guilty of fraud, negligence, delay or contravention of the tenor of the agreement. In the absence of any stipulation prescribing the degree of diligence required, that of a good father of a family is to be observed. Hence, any stipulation exempting the depositary from any liability arising from the loss of the thing deposited on account of fraud, negligence or delay would be void for being contrary to law and public policy. Also, said provisions are inconsistent with the respondent Bank's responsibility as a depositary under Section 72(a) of the General Banking Act. 56.YHT Realty Corp. vs. CA, GR 126780, Feb. 17, 2005 By: Laqui, Xela Leona D. Doctrine: The hotel-keeper cannot free himself from responsibility by posting notices to the effect that he is not liable for the articles brought by the guest. Any stipulation between the hotel-keeper and the guest whereby the responsibility of the former as set forth in Articles 1998 to 2001 is suppressed or diminished shall be void. Facts: McLoughlin, used to stay at Sheraton Hotel during his trips to the Philippines. Tan befriended McLoughlin. Tan convinced McLoughlin to transfer from Sheraton Hotel to Tropicana where Lainez, Payam and Danilo Lopez were employed. Lopez served as manager of the hotel while Lainez and Payam had custody of the keys for the safety deposit boxes of Tropicana. Tan took care of McLoughlins booking at the Tropicana where he started staying during his trips to the Philippines. McLoughlin arrived from Australia and registered with Tropicana. He rented a safety deposit box as it was his practice to rent a safety deposit box every time he registered at Tropicana in previous trips. McLoughlin was aware of the procedure observed by Tropicana relative to its safety deposit boxes. The safety deposit box could only be opened through the use of two keys. McLoughlin allegedly placed personal belongings to the safety deposit box. Before leaving for a brief trip to Hongkong, McLoughlin opened his safety deposit box with his key and with the key of the management and took therefrom the envelope containing US$5,000.00, the envelope containing AUS$10,000.00, his passports and his credit card. McLoughlin left the other items in the box as he did not check out of his room at the Tropicana during his short visit to Hongkong. When he arrived in Hongkong, he opened the envelope and discovered upon counting that only US$3,000.00 were enclosed therein. He thought that it was just a result of bad accounting since he did not spend anything from that envelope. After returning to Manila, he checked out of Tropicana and left for Australia. When he arrived in Australia, he discovered that the envelope with US$10,000.00 was short of US$5,000. He also noticed that the jewelry which he bought in Hongkong and stored in the safety deposit box upon his return to Tropicana was likewise missing, except for a diamond bracelet. When McLoughlin came back to the Philippines, he asked Lainez if some money and/or jewelry which he had lost were found and returned to her or to the management. However, Lainez told him that no one in the hotel found such things and none were turned over to the management. He again registered at Tropicana and rented a safety deposit box. When McLoughlin discovered the loss, he immediately confronted Lainez and Payam who admitted that Tan opened the safety deposit box with the key assigned to him. Tan admitted that she had stolen McLoughlins key and was able to open the safety deposit box with the assistance of Lopez, Payam and Lainez. Lopez also told McLoughlin that Tan stole the key assigned to McLoughlin while the latter was asleep. McLoughlin requested the management for an investigation of the incident. Lopez got in touch with Tan and arranged for a meeting with the police and McLoughlin. When the police did not arrive, Lopez and Tan went to the room of McLoughlin at Tropicana and thereat, Lopez wrote on a piece of paper a promissory note. Lopez requested Tan to sign the promissory note which the latter did and Lopez also signed as a witness. Despite the execution of promissory note by Tan, McLoughlin insisted that it must be the hotel who must assume responsibility for the loss he suffered. However, Lopez refused to accept the responsibility relying on the conditions for renting the safety deposit box entitled Undertaking For the Use Of Safety Deposit Box, specifically paragraphs (2) and (4) thereof. McLoughlin went back to Australia and he consulted his lawyers as to the validity of the abovementioned stipulations. They opined that the stipulations are void for being violative of universal hotel practices and customs. He eventually filed a complaint against against YHT Realty Corporation, Lopez, Lainez, Payam and Tan. RTC ruled in favor of McLoughlin. The CA affirmed. Issue: Whether the Undertaking For The Use of Safety Deposit Box admittedly executed is null and void? Ruling: Yes, the Undertaking For The Use of Safety Deposit Box admittedly executed is null and void. Article 2003 of the CC provides that The hotel-keeper cannot free himself from responsibility by posting notices to the effect that he is not liable for the articles brought by the guest. Any stipulation between the hotel-keeper and the guest whereby the responsibility of the former as set forth in Articles 1998 to 2001 is suppressed or diminished shall be void. Article 2003 was incorporated in the New Civil Code as an expression of public policy precisely to apply to situations such as that presented in this case. The hotel business like the common carriers business is imbued with public interest. Catering to the public, hotelkeepers are bound to provide not only lodging for hotel guests and security to their persons and belongings. The twin duty constitutes the essence of the business. The law in turn does not allow such duty to the public to be negated or diluted by any contrary stipulation in so-called undertakings that ordinarily appear in prepared forms imposed by hotel keepers on guests for their signature. Paragraphs (2) and (4) of the undertaking manifestly contravene Article 2003 of the New Civil Code for they allow Tropicana to be released from liability arising from any loss in the contents and/or use of the safety deposit box for any cause whatsoever. Evidently, the undertaking was intended to bar any claim against Tropicana for any loss of the contents of the safety deposit box whether or not negligence was incurred by Tropicana or its employees. The New Civil Code is explicit that the responsibility of the hotel-keeper shall extend to loss of, or injury to, the personal property of the guests even if caused by servants or employees of the keepers of hotels or inns as well as by strangers, except as it may proceed from any force majeure. It is the loss through force majeure that may spare the hotel-keeper from liability. In the case at bar, there is no showing that the act of the thief or robber was done with the use of arms or through an irresistible force to qualify the same as force majeure. In the case at bar, the responsibility of securing the safety deposit box was shared not only by the guest himself but also by the management since two keys are necessary to open the safety deposit box. Without the assistance of hotel employees, the loss would not have occurred. Doctrine: An action to annul a contract vitiated by intimidation, violence or undue influence shall be filed within four years from the cessation of such defects. Facts: An Action for Collection of a Sum of Money was filed by the Philippine National Bank (PNB, for brevity) against FilEastern Wood Industries, Inc. (Fil-Eastern, for short) in its capacity as principal debtor and against Cayetano Ferreria, Pedro Atienza, Vicente O. Novales, Antonio R. Agra, and Napoleon M. Gamo in their capacity as sureties. Details of the Loan: PNB granted Fil-Easter Php2.5M loan with interest at 12%/annum. As security, FilEastern as principal and sureties Ferreria, Atienza, Novales, Agra, and Gamo executed a Surety Agreement whereby the sureties, jointly and severally with the principal, guaranteed and warranted to PNB, its successors or assigns, prompt payment of subject obligation including notes, drafts, bills of exchange, overdrafts and other obligations of every kind, on which Fil-Eastern was indebted or may thereafter become indebted to PNB. Thus, Tropicana was guilty of concurrent negligence in allowing Tan, who was not the registered guest, to open the safety deposit box of McLoughlin, even assuming that the latter was also guilty of negligence in allowing another person to use his key. To rule otherwise would result in undermining the safety of the safety deposit boxes in hotels for the management will be given imprimatur to allow any person, under the pretense of being a family member or a visitor of the guest, to have access to the safety deposit box without fear of any liability that will attach thereafter in case such person turns out to be a complete stranger. This will allow the hotel to evade responsibility for any liability incurred by its employees in conspiracy with the guests relatives and visitors. Defendants-Sureties filed separate answers stating them same thing: that they thought the Surety Agreement was a mere formality and that they did not in any way or manner receive a single cent from the proceeds of said loan and/or derive any profit therefrom. Neither did they receive any consideration valuable or otherwise, from defendant Fil-Eastern. They further claim that the loan in question was negotiated and approved under highly irregular, anomalous and suspicious circumstances to the point that the Surety Agreement executed thereafter is invalid, null and void and from the beginning due to a defect in the consent of the defendants and that their liabilities under the Surety Agreement, if any, has been extinguished by novation. 57. Agra vs. PNB, GR 133317, June 29, 1999 By: Lesava, Anna RTC: ruled against the Sureties. CA: affirmed RTC decision, rejecting Sureties’ defense of laches. The Sureties claim that they should not be held liable as they were merely coerced by their employer into signing the deed. Issue: WON Petitioners, as sureties, are liable? Ruling: Yes, Petitioners are liable for they bound themselves solidarily for the obligation of Fil-Eastern to PNB. Although petitioners tried to defend themselves by claiming that they signed the Surety Agreement, but they challenge their liability thereon on the ground that they were allegedly coerced by their employer into signing the deed, the same was challenged beyond the prescriptive period. Article 1391 of the Civil Code provides that the action to annul a contract vitiated by intimidation, violence or undue influence shall be filed within four years from the cessation of such defects. In this case, Petitioners Agra, Gamo and Novales resigned from Fil-Eastern in 1967, 1968 and 1969, respectively. It was only in 1976, when PNB sought to enforce the contract, that they alleged a defect in their consent. By their inaction, their alleged cause of action based on vitiated consent had precribed. There was no question that petitioners, in their capacity as sureties, were answerable for the obligations of Fil-Eastern to PNB. 58. JN Development Corp. vs. Phil. Export and Foreign Loan Guarantee Corp., GR 151060, Aug. 31, 2005 By: Luzano, Gabriel Ray L. Doctrine: That payment was actually made after the term of the guarantee is not material—what is controlling is that default and demand on the guarantor had taken place while the guarantee was still in force. Facts: JN Development Corporation (“JN”) and Traders Royal Bank (TRB) entered into an agreement whereby TRB would extend to JN an Export Packing Credit Line for 2,000,000.00. The loan was covered by several securities, including a real estate mortgage and a letter of guarantee from respondent Philippine Export and Foreign Loan Guarantee Corporation (“PhilGuarantee). JN failed to pay the loan to TRB upon its maturity. TRB requested PhilGuarantee to pay its guarantee. Having received no response from JN, PhilGuarantee paid TRB 934,824.34. PhilGuarantee made several demands on JN, but the latter failed to pay. PhilGuarantee filed a Complaint for collection of money and damages. RTC dismissed but CA reversed the RTC. JN claims that the CA erred when it held that petitioners are liable to PhilGuarantee despite its payment after the expiration of its contract of guarantee. PhilGuarantee maintains that the date of default, not the actual date of payment, determines the liability of the guarantor and that having paid TRB when the loan became due, it should be indemnified by petitioners. Issue: Which view is correct, JN or PhilGuarantee? Ruling: PhilGuarantee. Under a contract of guarantee, the guarantor binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. The guarantor who pays for a debtor, in turn, must be indemnified by the latter. However, the guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the property of the debtor and resorted to all the legal remedies against the debtor. This is what is otherwise known as the benefit of excussion. Excussion may only be invoked after legal remedies against the principal debtor have been expanded. Thus, in order that the guarantor may make use of the benefit of excussion, he must set it up against the creditor upon the latter’s demand for payment and point out to the creditor available property of the debtor within the Philippines sufficient to cover the amount of the debt. While a guarantor enjoys the benefit of excussion, nothing prevents him from paying the obligation once demand is made on him. Excussion is a right granted to him by law and as such he may opt to make use of it or waive it. PhilGuarantee’s waiver of the right of excussion cannot prevent it from demanding reimbursement from petitioners. The law clearly requires the debtor to indemnify the guarantor what the latter has paid. The guarantee was only up to 17 December 1980. JN’s obligation with TRB fell due on 30 June 1980, and demand on PhilGuarantee was made by TRB on 08 October 1980. That payment was actually made only on 10 March 1981 does not take it out of the terms of the guarantee. What is controlling is that default and demand on PhilGuarantee had taken place while the guarantee was still in force. 59. Trade Investment Dev. Corp. of the Phil., et. al. vs. Asia Paces Corp., et. al., GR 187403, February 12, 2014 By: Manguera, Triccie Coleen A. DOCTRINE: Payment extension granted by the creditor to the principal debtor without the consent of the guarantor or surety does not have the effect of extinguishing the bonding companies’ obligations. FACTS: Respondents Asia Paces Corporation (ASPAC) and Paces Industrial Corporation (PICO) entered into a subcontracting agreement denominated as "200 KV Transmission Lines Contract No. 20-/80-II Civil Works & Electrical Erection," with the Electrical Projects Company of Libya (ELPCO) for the construction and erection of a double circuit bundle phase conductor transmission line in the country of Libya. To finance its working capital requirements, ASPAC obtained loans from foreign banks Banque Indosuez and PCI Capital (Hong Kong) Limited (PCI Capital) which were secured by several Letters of Guarantee issued by Trade and Investment Development Corporation of the Philippines (TIDCORP), then Philippine Export and Foreign Loan Guarantee Corp. Under the Letters of Guarantee, TIDCORP irrevocably and unconditionally guaranteed full payment of ASPAC’s loan obligations to Banque Indosuez and PCI Capital in the event of default by the latter. As a condition precedent to the issuance by TIDCORP of the Letters of Guarantee, ASPAC, PICO, and ASPAC’s President, Nicolas C. Balderrama (Balderrama) had to execute several Deeds of Undertaking, binding themselves to jointly and severally pay TIDCORP for whatever damages or liabilities it may incur under the aforementioned letters. In the same light, ASPAC, as principal debtor, entered into surety agreements (Surety Bonds) with Paramount, Phoenix, Mega Pacific and Fortune (bonding companies), as sureties, also holding themselves solidarily liable to TIDCORP, as creditor, for whatever damages or liabilities the latter may incur under the Letters of Guarantee. ASPAC eventually defaulted on its loan obligations to Banque Indosuez and PCI Capital. Demand letters to the bonding companies were sent but to no avail. Taking into account the moratorium request issued by the Minister of Finance of the Republic of the Philippines, TIDCORP and its various creditor banks, such as Banque Indosuez and PCI Capital, forged a Restructuring Agreement extending the maturity dates of the Letters of Guarantee. The bonding companies were not privy to the Restructuring Agreement and, hence, did not give their consent to the payment extensions. Nevertheless, following new payment schedules, TIDCORP fully settled its obligations. Seeking payment for the damages and liabilities it had incurred under the Letters of Guarantee and with its previous demands therefor left unheeded, TIIDCORP filed a collection case against: (a) ASPAC, PICO, and Balderrama on account of their obligations under the deeds of undertaking; and (b) the bonding companies on account of their obligations under the Surety Bonds. RTC: Partially granted TIDCORP’s complaint and thereby found ASPAC, PICO, and Balderrama jointly and severally liable to TIDCORP but absolved the bonding companies from liability on the ground that the moratorium request and the consequent payment extensions granted by Banque Indosuez and PCI Capital in TIDCORP’s favor without their consent extinguished their obligations under the Surety Bonds. CA: Upheld the ruling of RTC that the moratorium request "had the effect of an extension granted to a debtor, which extension was without the consent of the guarantor, and thus released the surety companies from their respective liabilities under the issued surety bonds" pursuant to Article 2079 of the Civil Code. Hence, this appeal filed by TIDCORP. ISSUE: Whether or not the bonding companies’ liabilities to TIDCORP under the Surety Bonds have been extinguished by the payment extensions granted by Banque Indosuez and PCI Capital to TIDCORP under the Restructuring Agreement. HELD: NO. A surety is considered in law as being the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter, and their liabilities are interwoven as to be inseparable. Although the contract of a surety is in essence secondary only to a valid principal obligation, his liability to the creditor is direct, primary and absolute; he becomes liable for the debt and duty of another although he possesses no direct or personal interest over the obligations nor does he receive any benefit therefrom. The fundamental reason therefor is that a contract of suretyship effectively binds the surety as a solidary debtor. The Court finds that the payment extensions granted by Banque Indosuez and PCI Capital to TIDCORP under the Restructuring Agreement did not have the effect of extinguishing the bonding companies’ obligations to TIDCORP under the Surety Bonds, notwithstanding the fact that said extensions were made without their consent. This is because Article 2079 of the Civil Code refers to a payment extension granted by the creditor to the principal debtor without the consent of the guarantor or surety. In this case, the Surety Bonds are suretyship contracts which secure the debt of ASPAC, the principal debtor, under the Deeds of Undertaking to pay TIDCORP, the creditor, the damages and liabilities it may incur under the Letters of Guarantee, within the bounds of the bonds’ respective coverage periods and amounts. No payment extension was, however, granted by TIDCORP in favor of ASPAC in this regard; hence, Article 2079 of the Civil Code should not be applied with respect to the bonding companies’ liabilities to TIDCORP under the Surety Bonds. The payment extensions granted by Banque Indosuez and PCI Capital pertain to TIDCORP’s own debt under the Letters of Guarantee wherein it (TIDCORP) irrevocably and unconditionally guaranteed full payment of ASPAC’s loan obligations to the banks in the event of its (ASPAC) default. In other words, the Letters of Guarantee secured ASPAC’s loan agreements to the banks. Under this arrangement, TIDCORP therefore acted as a guarantor, with ASPAC as the principal debtor, and the banks as creditors. Proceeding from the foregoing discussion, it is quite clear that there are two sets of transactions that should be treated separately and distinctly from one another following the civil law principle of relativity of contracts "which provides that contracts can only bind the parties who entered into it, and it cannot favor or prejudice a third person, even if he is aware of such contract and has acted with knowledge thereof." Verily, as the Surety Bonds concern ASPAC’s debt to TIDCORP and not TIDCORP’s debt to the banks, the payments extensions would not deprive the bonding companies of their right to pay their creditor (TIDCORP) and to be immediately subrogated to the latter’s remedies against the principal debtor (ASPAC) upon the maturity date. It must be stressed that these payment extensions did not modify the terms of the Letters of Guarantee but only provided for a new payment scheme covering TIDCORP’s liability to the banks. In fine, considering the inoperability of Article 2079 of the Civil Code in this case, the bonding companies’ liabilities to TIDCORP under the Surety Bonds – except those issued by Paramount and covered by its Compromise Agreement with TIDCORP – have not been extinguished. 60.) Spouses Paray v. Dra. Rodriguez, G.R. No. 132287, Jan. 24, 2006. By. Morales, Carol Ann S. DOCTRINE: Obviously, since there is no right to redeem personal property, the rights of ownership vested unto the purchaser at the foreclosure sale are not entangled in any suspensive condition that is implicit in a redemptive period. FACTS: Respondents were the owners, in their respective personal capacities, of shares of stock in a corporation known as the Quirino-Leonor-Rodriguez Realty Inc. Sometime during the years 1979 to 1980, respondents secured by way of pledge of some of their shares of stock to petitioners Bonifacio and Faustina Paray (Parays) the payment of certain loan obligations. When the Parays attempted to foreclose the pledges on account of respondents failure to pay their loans, respondents filed complaints with the Regional Trial Court (RTC) of Cebu City. RTC, in its decision dated 14 October 1988, dismissed the complaint and gave due course to the foreclosure and sale at public auction of the various pledges subject of these two cases. Respondents then received Notices of Sale which indicated that the pledged shares were to be sold at public auction on 4 November 1991. However, before the scheduled date of auction, all of respondents caused the consignation with the RTC Clerk of Court of various amounts. It was claimed that respondents had attempted to tender these payments to the Parays, but had been rebuffed. Notwithstanding the consignations, the public auction took place as scheduled, with petitioner Vidal Espeleta successfully bidding the amount of P6,200,000.00 for all of the pledged shares. Respondents instead filed on 13 November 1991 a complaint seeking the declaration of nullity of the concluded public auction. Respondents argued that their tender of payment and subsequent consignations served to extinguish their loan obligations and discharged the pledge contracts. ISSUE: Whether or not the consignation extinguished the principal obligation and therefore invalidating the auction sale. RULING: NO. The Court of Appeals made three crucial conclusions favorable to respondents: that their act of consigning the payments with the RTC should be deemed done in the exercise of their right of redemption; that the buyer at public auction does not ipso facto become the owner of the pledged shares pending the lapse of the one-year redemptive period; and that the collective sale of the shares of stock belonging to several individual owners without specification of the apportionment in the applications of payment deprives the individual owners of the opportunity to know of the price they would have to pay for the purpose of exercising the right of redemption. The proper focus of the Court of Appeals should have been whether the consignations made by respondents sufficiently acquitted them of their principal obligations. A pledge contract is an accessory contract, and is necessarily discharged if the principal obligation is extinguished. Indeed, as affirmed by the Civil Code, the decision to proceed with the sale by public auction remains in the sole discretion of the Parays, who could very well choose not to hold the sale without violating the final judgments in the aforementioned civil cases. The right to redeem property sold as security for the satisfaction of an unpaid obligation does not exist preternaturally. Neither is it predicated on proprietary right, which, after the sale of property on execution, leaves the judgment debtor and vests in the purchaser. Instead, it is a bare statutory privilege to be exercised only by the persons named in the statute. Since the pledged shares in this case are not subject to redemption, the Court of Appeals had no business invoking and applying the inexistent right of redemption. We cannot thus agree that the consigned payments should be treated with liberality, or somehow construed as having been made in the exercise of the right of redemption. We also must reject the appellate courts declaration that the buyer of at the public auction is not ipso facto rendered the owner of the auctioned shares, since the debtor enjoys the one-year redemptive period to redeem the property. Obviously, since there is no right to redeem personal property, the rights of ownership vested unto the purchaser at the foreclosure sale are not entangled in any suspensive condition that is implicit in a redemptive period. 61. Villanueva v. Salvador, G.R. 139436, Jan. 25, 2006 By: Morales, Edilyn T. Doctrine: Section 13 of Presidential Decree (P.D.) 114, otherwise known as the Pawnshop Regulation Act, and even the terms and conditions of the pledge itself, accord the pawner a 90-day grace period from the date of maturity of the loan obligation within which to redeem the pawn. Facts: Respondent Spouses Salvador secured a loan of P7,650 from petitioner Ever Pawnshop owned and managed by co-petitioner Villanueva. The Spouses took out another loan of P5,400 and pledging, just like the first transaction, jewelry items. The separate redemption periods came and went but the spouses failed to redeem the pawned jewelries. Their son paid Ever Pawnshop P7,000, the amount to be paid against the first loan of P7,650. On the second loan, the Pawnshop agreed to the extension of the maturity date provided the spouses pat 20%of their second loan, failing which the securing items shall be auctioned as scheduled. Unlike in the first loan, however, a new pan ticket was not issued for the second loan. In the meantime, the Pawnshop issued a notice announcing the public auction sale of all unredeemed pledges. The notice appeared in the Classified Ads Section of the Manila Bulletin on the very day of the auction itself. The spouses repaired to the pawnshop in a bid to renew the second loan by tendering the 20% of the amount due thereon, only to be informed that the pledged jewelries had already been auctioned. CA, however, found that the jewelries were still in the shop. A month after, Mrs. Salvador attempted to redeem the jewelries but all she got in response were unclear information as their whereabouts. Mr. Salvador tendered payment of the amount but the Pawnshop refused. The spouses filed a complaint for damages against Villanueva and Ever Pawnshop which was resolved in their favor. CA affirmed this decision. Issue: Whether valid notice of the sale of the pledged jewelry was effected Ruling: NO. Section 13 of Presidential Decree (P.D.) 114, otherwise known as the Pawnshop Regulation Act, and even the terms and conditions of the pledge itself, accord the pawner a 90-day grace period from the date of maturity of the loan obligation within which to redeem the pawn. But even before the lapse of the 90-day period, the same Decree requires the pawnbroker to notify the defaulting debtor of the proposed auction sale. However, over and above the foregoing prescription is the mandatory requirement for the publication of such notice once in at least two daily newspapers during the week preceding the date of the auction sale. Petitioner Ever Pawnshop, as determined by the CA, only caused publication of the auction in one newspaper, i.e., the Manila Bulletin, and on the very day of the scheduled auction sale itself, instead of a week preceding the sale as prescribed by Section 15 of P.D. 114. Verily, a notice of an auction sale made on the very scheduled auction day itself defeats the purpose of the notice, which is to inform a pawner beforehand that a sale is to occur so that he may have that last chance to redeem his pawned items. 62. UNION BANK OF THE PHIL. V. JUNIAT ET. AL. By: Morales, I DOCTRINE: Article 2096 of the Civil Code, [a] pledge shall not take effect against third persons if a description of the thing pledged and the date of the pledge do not appear in a public instrument. Hence, just like the chattel mortgage executed in favor of petitioner, the pledge executed by Juniat in favor of Nonwoven cannot bind petitioner. FACTS: Petitioner filed with RTC Makati a Complaint with prayer for the issuance of ex-parte writs of preliminary attachment and replevin against Juniat, Winwood, Wingyan, and the person in possession of the mortgaged motorized sewing machines and equipment. Petitioner alleged that Juniat, acting for and in behalf of Winwood and Wingyan, executed a promissory note dated April 11, 1992 and a Chattel Mortgage over several motorized sewing machines and other allied equipment to secure their obligation arising from export bills transactions to petitioner in the amount of P1,131,134.35; that as additional security for the obligation, Juniat executed a Continuing Surety Agreement dated April 11, 1992 in favor of petitioner; that the loan remains unpaid; and that the mortgaged motorized sewing machines are insufficient to answer for the obligation. RTC - issued writs of preliminary attachment and replevin in favor of petitioner The writs were served by the Sheriff upon Nonwoven as it was in possession of the motorized sewing machines and equipment. Nonwoven filed an Answer, contending that the unnotarized Chattel Mortgage executed in favor of petitioner has no binding effect on Nonwoven and that it has a better title over the motorized sewing machines and equipment because these were assigned to it by Juniat pursuant to their Agreement dated May 9, 1992. ISSUE: WON a contract of pledge must appear in a public instrument to bind third parties? RULING: Yes. It must be pointed out that petitioners primary cause of action is for a sum of money with prayer for the issuance of ex-parte writs of attachment and replevin against Juniat, Winwood, Wingyan, and the person in possession of the motorized sewing machines and equipment. Thus, the fact that the Chattel Mortgage executed in favor of petitioner was not notarized does not affect petitioners cause of action. Petitioner only needed to show that the loan of Juniat, Wingyan and Winwood remains unpaid and that it is entitled to the issuance of the writs prayed for. Considering that writs of attachment and replevin were issued by the RTC, Nonwoven had to prove that it has a better right of possession or ownership over the attached properties. This it failed to do. A perusal of the Agreement dated May 9, 1992 clearly shows that the sewing machines, snap machines and boilers were pledged to Nonwoven by Juniat to guarantee his obligation. However, under Article 2096 of the Civil Code, [a] pledge shall not take effect against third persons if a description of the thing pledged and the date of the pledge do not appear in a public instrument. Hence, just like the chattel mortgage executed in favor of petitioner, the pledge executed by Juniat in favor of Nonwoven cannot bind petitioner. Neither can we sustain the finding of the CA that: The machineries were ceded to THIRD PARTY NONWOVEN by way of dacion en pago, a contract later entered into by WINWOOD/WINGYAN and THIRD PARTY NONWOVEN. As aptly pointed out by petitioner, no evidence was presented by Nonwoven to show that the attached properties were subsequently sold to it by way of a dacion en pago. Also, there is nothing in the Agreement dated May 9, 1992 to indicate that the motorized sewing machines, snap machines and boilers were ceded to Nonwoven as payment for the Wingyans and Winwoods obligation. It bears stressing that there can be no transfer of ownership if the delivery of the property to the creditor is by way of security. In fact, in case of doubt as to whether a transaction is one of pledge or dacion en pago, the presumption is that it is a pledge as this involves a lesser transmission of rights and interests. 63. BPI VS. ELIZABETH SARMIENTO (GR NO. 146021, March 10, 2006) By: Nitro, Dustin P. DOCTRINE: If something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises. FACTS: Elizabeth Sarmiento was the assistant manager of BPI Espana Branch. Sometime in 1987, the España Branch was investigated for several alleged anomalous transactions involving time deposits. Among the suspects in the alleged scam was appellee Sarmiento. From October 10, 1987 to June 30, 1988, Sarmiento did not regularly report for work. She however received her full salary. Sarmiento received a demand from BPI to return said amount but she refused to do so. BPI asserted that since Sarmiento did not actually work during the period adverted to, she was not entitled to receive any salary. According to Sarmiento, she was verbally directed to stop working while the investigation was going on. The RTC dismissed the complaint. The principle of solutio indebiti upon which the petitioner based its complaint. CA affirmed the decision. ISSUE: WON there is Solutio Indebiti? HELD: NO. The Supreme Court ruled in favor of Sarmiento. The two requisites of Solutio Indebiti are present; (1) there is no right to collect these excess sums; as (2) the amounts have been paid through mistake by defendants. During the period in question, there still existed an employer-employee relationship between the petitioner and the respondent. The Court likewise agrees with the CA that respondent could not be faulted for not reporting for work because she merely complied with the verbal instruction of AVP Kimseng not to report for work when the latter was conducting the investigation of the branch for anomalies.There can be no mistaken payment in this case. It has been shown that the payment of respondent’s salary was with the knowledge and approval of respondent’s immediate superior officers. may be one which creates a situation involving an unreasonable risk to another because of the expectable action of the other, a third person, an animal, or a force of nature. A negligent act is one from which an ordinary prudent person in the actor's position, in the same or similar circumstances, would foresee such an appreciable risk of harm to others as to cause him not to do the act or to do it in a more careful manner. FACTS: A branch of caimito tree fell on Jasmin Cardaña was walking along San Roque Elementary School causing her death. Spouses Cardana alleged that Lerios, a resident, already reported the possible danger of the rotten tree but petitioner Capili, the school’s principal, denied it and said that they only talked about the sale of the tree. RTC denied the petition for failure to establish negligence. CA reversed. By: Quising, Josiah Capili argues that moral damages should not be granted against her because there was no fraud or bad faith and that she didn’t know that the tree was rotting and that he assigned another teacher to dispose of the tree.. Cardana argues that she did not exercise reasonable care and caution which an ordinary prudent person would have done in the same situation. DOCTRINE: ISSUE: A negligent act is an inadvertent act; it may be merely carelessly done from a lack of ordinary prudence and Whether petitioner is negligent and liable for moral damages for the death of Jasmin Cardaña 64. Capili vs. Spouses Cardaña, GR 157906 HELD: Yes. Petitioner is negligent. No she is not liable for moral damages. A negligent act is an inadvertent act; it may be merely carelessly done from a lack of ordinary prudence and may be one which creates a situation involving an unreasonable risk to another because of the expectable action of the other, a third person, an animal, or a force of nature. A negligent act is one from which an ordinary prudent person in the actor's position, in the same or similar circumstances, would foresee such an appreciable risk of harm to others as to cause him not to do the act or to do it in a more careful manner. The probability that the branches of a dead and rotting tree could fall and harm someone is clearly a danger that is foreseeable. In every tort case filed under Article 2176 of the Civil Code, plaintiff has to prove by a preponderance of evidence: (1) the damages suffered by the plaintiff; (2) the fault or negligence of the defendant or some other person for whose act he must respond; and (3) the connection of cause and effect between the fault or negligence and the damages incurred. instrumentality within the exclusive management or control of the person charged with the negligence complained of; and (3) the accident must not have been due to any voluntary action or contribution on the part of the person injured. The effect of the doctrine of res ipsa loquitur is to warrant a presumption or inference that the mere falling of the branch of the dead and rotting tree which caused the death of respondents' daughter was a result of petitioner's negligence, being in charge of the school. Capili’s explanation is not enough. The fact that she failed to see the immediate danger posed by the dead and rotting tree shows she failed to exercise the responsibility demanded by her position. She also exercises supervision over the teacher she assigned to dispose the tree. However, the person claiming moral damages must prove the existence of bad faith by clear and convincing evidence for the law always presumes good faith. It is not enough that one merely suffered sleepless nights, mental anguish, and serious anxiety as the result of the actuations of the other party. Invariably, such action must be shown to have been willfully done in bad faith or with ill motive. Under the circumstances, we have to concede that petitioner was not motivated by bad faith or ill motive vis-á-vis respondents' daughter's death. The award of moral damages is therefore not proper. The fact, however, that respondents' daughter, Jasmin, died as a result of the dead and rotting tree within the school's premises shows that the tree was indeed an obvious danger to anyone passing by and calls for application of the principle of res ipsa loquitur. 65.Orix Metro Leasing & Finance Corp. vs. Dizon et. al., GR 174089, Jan. 25, 2012 By: Regalado, Mica The doctrine of res ipsa loquitur applies where (1) the accident was of such character as to warrant an inference that it would not have happened except for the defendant's negligence; (2) the accident must have been caused by an agency or FACTS: A multiple-vehicle (3 vehicles) collision in North Luzon Expressway (NLEX) resulting in the death of all the passengers in one vehicle, including the parents and a sibling of the surviving orphaned minor heirs, compelled the latter to file an action for damages against the registered owners and drivers of the two 10-wheeler trucks (Fuso and Isuzu) that collided with their parents’ Nissan Pathfinder (Pathfinder). The RTC found Sonny (registered owner of Isuzu truck), Antonio (driver), Loreto (driver) and Orix (registered owner of Fuso truck) liable for actual, moral, and exemplary damages, and attorney’s fees. It found recklessness on the part of both drivers. The CA modified the award of damages (P150k indemnity, P2M for loss of earning capacity, P64.3k funeral expenses, P1M moral damages, P1M exemplary damages, and P400k attorney’s fees). ISSUE: Whether the award of damages is proper RULING: Yes, with modification as to their amounts. The finding of negligence of petitioners as found by the lower courts is binding. Orix as the operator on record of the Fuso truck is liable to the heirs of the victims of the mishap. FUNERAL EXP. With regard to actual damages, one is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved. (increase funeral expenses to P107k). LOSS OF EARNING CAP (TEMPERATE). In addition to P150,000.00 indemnity for the death of the spouses Mangalinao and their daughter Marianne as a result of quasidelict, actual damages shall likewise include the loss ofthe earning capacity of the deceased. What the CA awarded is in actuality a form of temperate damages. Such form of damages under Article 2224 of the Civil Code is given in the absence of competent proof on the actual damages suffered.“In the past, we awarded temperate damages in lieu of actual damages for loss of earning capacity where earning capacity is plainly established but no evidence was presented to support the allegation of the injured party’s actual income.” In this case, Roberto Mangalinao, the breadwinner of the family, was a businessman engaged in buying and selling palay and agricultural supplies that required high capital in its operations and was only 37 at the time of his death. Moreover, the Pathfinder which the Mangalinaos own, became a total wreck. Under the circumstances, we find the award of P500,000.00 as temperate damages as reasonable. MORAL DAMAGES. Reduce to P500k. ATTORNEY’S FEE. Reduce to P50k 66. Jarco Marketing Corp. vs. Court of Appeals, GR 129792, Dec. 21, 1999 By: Samantha Reyes Doctrine: Accident and negligence are intrinsically contradictory; one cannot exist with the other. Negligence is the failure to observe, for the protection of the interest of another person, that degree of care, precaution and vigilance which the circumstances justly demand, whereby such other person suffers injury. Facts: Jarco Marketing Corporation is the owner of Syvels Department Store, Makati City. Criselda (mother) and Zheineth (6 year-old daughter) were at the 2nd floor of Syvels. While Criselda was signing her credit card slip at the payment and verification counter, she felt a sudden gust of wind and heard a loud thud. She looked behind her and saw Zhieneth on the floor pinned by the store’s gift-wrapping counter/structure. She was rushed to the Makati Medical Center where she died 14 days after. Issues: a.Whether the death was accidental or attributable to negligence; and, b.In case of negligence, to whom was it attributable? Ruling: a.Negligence. An accident pertains to an unforeseen event in which no fault or negligence attaches to the defendant. It is a fortuitous circumstance, event or happening; an event happening without any human agency, or if happening wholly or partly through human agency, an event which under the circumstances is unusual or unexpected by the person to whom it happens. Accident occurs when the person concerned is exercising ordinary care, which is not caused by fault of any person and which could not have been prevented by any means suggested by common prudence. On the other hand, negligence is the failure to observe, for the protection of the interest of another person, that degree of care, precaution and vigilance which the circumstances justly demand, whereby such other person suffers injury. Accident and negligence are intrinsically contradictory; one cannot exist with the other. In this case, the store supervisors (witnesses) were personally informed of the danger posed by the unstable counter (not nailed to the floor). Yet, neither initiated any concrete action to remedy the situation nor ensure the safety of the stores’ employees and patrons as a reasonable and ordinary prudent man would have done. Thus, as confronted by the situation petitioners miserably failed to discharge the due diligence required of a good father of a family. a.It was attributable to Jarco. No contributory negligence by: (1) Criselda – it was reasonable to let go of her daughter momentarily to sign payment; (2) Zheineth – as there is a conclusive presumption that favors children below nine (9) years old that they are incapable of contributory negligence as a matter of law. CASTILEX INDUSTRIAL CORPORATION vs. VICENTE VASQUEZ, JR. and LUISA SO VASQUEZ, and CEBU DOCTORS' HOSPITAL, INC. G.R. NO. 132266 December 21, 1999. DOCTRINE: Whether or not engaged in any business or industry, an employer is liable for the torts committed by employees within the scope of his assigned tasks. But it is necessary to establish the employer-employee relationship; once this is done, the plaintiff must show, to hold the employer liable, that the employee was acting within the scope of his assigned task when the tort complained of was committed. It is only then that the employer may find it necessary to interpose the defense of due diligence in the selection and supervision of the employee. FACTS: At around 1:30 to 2:00 in the morning, Romeo So Vasquez (son of respondents Vicente and Luisa Vasquez), was driving a Honda motorcycle around Fuente Osmeña Rotunda. He was traveling counter-clockwise, (the normal flow of traffic in a rotunda) but without any protective helmet or goggles. He was also only carrying a Student's Permit to Drive at the time. Benjamin ABAD was a manager of petitioner CASTILEX Industrial Corporation, registered owner of a Toyota Hi-Lux Pick-up with plate no. GBW-794. ABAD drove the said company car out of a parking lot but instead of going around the Osmeña rotunda he made a short cut against [the] flow of the traffic in proceeding to his route to General Maxilom St. In the process, the motorcycle of Vasquez and the pick-up of ABAD collided with each other causing severe injuries to the former. ABAD brought Vasquez to CEBU DOCTORS' HOSPITAL where he died. A Criminal Case was filed against ABAD but which was subsequently dismissed for failure to prosecute. An action for damages was then commenced by respondents against ABAD and petitioner CASTILEX negligent acts of employees, whether or not the employer is engaged in a business or industry, are covered so long as they were acting within the scope of their assigned task, even though committed neither in the service of the branches nor on the occasion of their functions. Trial court ruled in favor of private respondents and ordered ABAD and to pay jointly and solidarily respondents Petitioner CASTILEX and ABAD separately appealed the decision. Court of Appeals affirmed the ruling of the trial court holding ABAD and petitioner CASTILEX liable but held that the liability of the latter is "only vicarious and not solidary" with the former. Hence, CASTILEX filed the instant petition. ISSUE/S: a.Whether or not Castilex is vicariously liable with Abad b.Whether or not was performing acts within the range of his employment RULING: YES The phrase “even though the former are not engaged in any business or industry” found in the 5th paragraph of Article 2180 should be interpreted to mean that it is not necessary for the employer to be engaged in any business or industry to be liable for the negligence of his employee who is acting within the scope of his assigned task. Distinctions between paragraph 4 and 5: Paragraph 4 Paragraph 5 owners and managers of an establishment or enterprise covers negligent acts of employees committed either in the service of the branches or on the occasion of their functions employers in general, whether or not engaged in any business or industry encompasses negligent acts of employees acting within the scope of their assigned task expansion of paragraph 4 in both employer coverage and acts included. Whether or not engaged in any business or industry, an employer is liable for the torts committed by employees within the scope of his assigned tasks. But it is necessary to establish the employer-employee relationship; once this is done, the plaintiff must show, to hold the employer liable, that the employee was acting within the scope of his assigned task when the tort complained of was committed. It is only then that the employer may find it necessary to interpose the defense of due diligence in the selection and supervision of the employee. 2. NO There is no absolutely hard and fast rule can be stated which will furnish the complete answer to the problem of whether at a given moment, an employee is engaged in his employer's business in the operation of a motor vehicle, so as to fix liability upon the employer because of the employee's action or inaction; but rather, the result varies with each state of facts. In Filamer Christian vs. IAC, the SC held that: Acts done within the scope of the employee's assigned tasks includes "any act done by an employee in furtherance of the interests of the employer or for the account of the employer at the time of the infliction of the injury or damages.” The mere fact that Abad was using a service vehicle at the time of the injurious incident is not of itself sufficient to charge petitioner with liability for the negligent operation of said vehicle unless it appears that he was operating the vehicle within the course or scope of his employment. Operation of Employer’s Motor Vehicle in Going to or From Meals employee is not ordinarily acting within the scope of his employment in the absence of evidence of some special business benefit to the employer evidence that by using the employer's vehicle to go to and from meals, an employee is enabled to reduce his time-off and so devote more time to the performance of his duties supports the finding that an employee is acting within the scope of his employment while so driving the vehicle Operation of Employer’s Vehicle in Going to or From Work traveling to and from the place of work is ordinarily a personal problem or concern of the employee, and not a part of his services to his employer in the absence of some special benefit to the employer other than the mere performance of the services available at the place where he is needed, the employee is not acting within the scope of his employment even though he uses his employer's motor vehicle special errand or roving commission employee continues in the service of his employer until he actually reaches home Use of Employer’s Vehicle Outside Regular Working Hours employer is not generally liable for the employee's negligent operation of the vehicle during the period of permissive use, even where the employer contemplates that a regularly assigned motor vehicle will be used by the employee for personal as well as business purposes and there is some incidental benefit to the employer employer is not liable, even if the employee is deemed to be acting within the scope of his employment, when the employee has left the direct route of his work or back home and is pursuing a personal errand of his own Although the aforementioned principles of American common law are based on the doctrine of respondeat superior, they are still applicable in this jurisdiction. Before the collision occurred, Abad had snacks and a chat with his friends at Goldie’s Restaurant, which is 7 km away from Castilex. Fuente Osmeña is known as a lively place where prostitutes, pimps and drug addicts littered. At the time of the vehicular accident, Abad was with a woman in his car who shouted: “Daddy, Daddy!”. Abad was engaged in affairs of his own or was carrying out a personal purpose not in line with his duties at the time he figured in a vehicular accident. It was then about 2:00 a.m. of 28 August 1988, way beyond the normal working hours. Hence, Castilex has no duty to show that it exercised the diligence of a good father of the family in providing Abad with a service vehicle. Petition is granted. CA decision and resolution is affirmed with modification that Castilex is absolved from liability. 68. Professional Services Inc. vs. Agana, GR No. 126297, Jan. 31, 2007 By: Sanchez, Precious Loren Doctrine: Private hospitals, hire, fire and exercise real control over their attending and visiting ‘consultant’ staff. While ‘consultants’ are not, technically employees, x x x, the control exercised, the hiring, and the right to terminate consultants all fulfill the important hallmarks of an employer-employee relationship, with the exception of the payment of wages. In assessing whether such a relationship in fact exists, the control test is determining. Accordingly, on the basis of the foregoing, we rule that for the purpose of allocating responsibility in medical negligence cases, an employer-employee relationship in effect exists between hospitals and their attending and visiting physicians. Facts: Enrique Agana and Natividad Agana (now deceased) filed a complaint for damages against PSI, Dr. Ampil, and Dr. Fuentes for the injuries suffered by Natividad when Dr. Ampil and Dr. Fuentes neglected to remove from her body two gauzes which were used in the surgery they performed on her at the Medical City General Hospital. PSI was impleaded as owner, operator and manager of the hospital. The lower courts held Dr. Ampil liable for negligence and malpractice because an operation requiring the placing of sponges in the incision is not complete until the sponges are properly removed, and it is settled that the leaving of sponges after the incision has been closed is at least prima facie negligence by the operating surgeon. And it was Dr. Ampil, in this case, who closed the incision. Dr. Fuentes was not held liable by the lower courts since Dr. Ampil was the lead surgeon and only asked the assistance of Dr. Fuentes to perform hysterectomy, and it is still Dr. Ampil who examined the works of Dr. Fuentes. Issue: Whether or not PSI should be held liable? Ruling: Yes. In this jurisdiction, the statute governing liability for negligent acts is Article 2176 of the Civil Code, which reads: Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre- existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter. A derivative of this provision is Article 2180, the rule governing vicarious liability under the doctrine of respondeat superior, thus: ART. 2180. The obligation imposed by Article 2176 is demandable not only for one’s own acts or omissions, but also for those of persons for whom one is responsible. x x x The owners and managers of an establishment or enterprise are likewise responsible for damages caused by their employees in the service of the branches in which the latter are employed or on the occasion of their functions. Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks even though the former are not engaged in any business or industry. x x x The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the diligence of a good father of a family to prevent damage. The nature of the relationship between the hospital and the physicians is rendered inconsequential in view of our categorical pronouncement in Ramos v. Court of Appeals that for purposes of apportioning responsibility in medical negligence cases, an employer-employee relationship in effect exists between hospitals and their attending and visiting physicians. This Court held: In the first place, hospitals exercise significant control in the hiring and firing of consultants and in the conduct of their work within the hospital premises. Doctors who apply for ‘consultant’ slots, visiting or attending, are required to submit proof of completion of residency, their educational qualifications, generally, evidence of accreditation by the appropriate board (diplomate), evidence of fellowship in most cases, and references. These requirements are carefully scrutinized by members of the hospital administration or by a review committee set up by the hospital who either accept or reject the application. In other words, private hospitals, hire, fire and exercise real control over their attending and visiting ‘consultant’ staff. While ‘consultants’ are not, technically employees, x x x, the control exercised, the hiring, and the right to terminate consultants all fulfill the important hallmarks of an employer-employee relationship, with the exception of the payment of wages. In assessing whether such a relationship in fact exists, the control test is determining. Accordingly, on the basis of the foregoing, we rule that for the purpose of allocating responsibility in medical negligence cases, an employer-employee relationship in effect exists between hospitals and their attending and visiting physicians. 69. Mercury Drug vs. Spouses Henry Huang, GR 172122, June 22, 2007 By: Umangay, Karen Abigail Doctrine: The employer, to relieve himself from liability under Art. 2180, should show that it exercised the diligence of a good father of a family, both in the selection of the employee and in the supervision of the performance of his duties. Facts: Mercury Drug is the registered owner of a six-wheeler truck driven by Rolando del Rosario. Richard and Carmen Huang are the parents of Stephen Huang and own a red 1991 Toyota Corolla Sedan. The two vehicles figured an accident. Both were traversing C5 Highway, north bound, coming from the general direction of Alabang going to Pasig City. The car was on the left innermost lane while the truck was on the next lane to its right, when the truck suddenly swerved to its left and slammed into the front right side of the car. Del Rosario only had a Traffic Violation Receipt (TVR). His driver’s license had been confiscated because he had been previously apprehended for reckless driving. The car was a total wreck. Stephen Huang is paralyzed for life from his chest down and requires continuous medical and rehabilitation treatment. Respondents fault petitioner Del Rosario for committing gross negligence and reckless imprudence while driving, and petitioner Mercury Drug for failing to exercise the diligence of a good father of a family in the selection and supervision of its driver. RTC found Mercury Drug and Del Rosario jointly and severally liable. CA affirmed. Issue/s: Whether Mercury Drug is liable? Ruling: Yes, it failed to discharge its burden of proving that it exercised due diligence in the selection and supervision of its employee. The applicants of Mercury Drug are required to take theoretical and actual driving tests and psychological examination. Del Rosario took the driving tests and psychological test when he applied for the position of Delivery Man not as a Truck Man. That during the tests, Del Rosario used a Gallant and not a truck. Further, no tests were conducted on the motor skills development, perceptual speed, visual attention, depth visualization, eye and hand coordination and steadiness of petitioner Del Rosario. No NBI and police clearances were also presented. Lastly, petitioner Del Rosario attended only three driving seminars. Mercury Drug does not also provide for a back-up driver for long trips. At the time of the accident, petitioner Del Rosario has been out on the road for more than thirteen hours. Mercury Drug likewise failed to show that it exercised due diligence on the supervision and discipline over its employees. In fact, on the day of the accident, Del Rosario was driving without a license. He was holding a TVR for reckless driving. He testified that he reported the incident to his superior, but nothing was done about it. He was not suspended or reprimanded. 70. Dr. Filoteo Alana vs. Zenaida Magud-Logmao, G.R. 175540, April 7, 2014 By: Uson, Nichole John O. Doctrine: In civil cases, it is a basic rule that the party making allegations has the burden of proving them by a preponderance of evidence. The parties must rely on the strength of their own evidence and not upon the weakness of the defense offered by their opponent. Facts: Plaintiff-appellee Zenaida Magud-Logmao is the mother of deceased Arnelito Logmao. Defendant-appellant Dr. Filoteo Alano is the Executive Director of the National Kidney Institute (NKI). Arnelito Logmao was brought to the East Avenue Medical Center (EAMC) in Quezon City by two sidewalk vendors, who allegedly saw the former fall from the overpass near the Farmers’ Market in Cubao, Quezon City. The patient’s data sheet identified the patient as Angelito Lugmoso of Boni Avenue, Mandaluyong. However, the clinical abstract prepared by Dr. Cabrera, the surgical resident on-duty at the Emergency Room of EAMC, stated that the patient is Angelito [Logmao]. Logmao was transferred to NKI. At the NKI, Logmao was recorded as Angelito Lugmoso. As Lugmoso had no relatives around, Jennifer B. Misa, Transplant Coordinator, was asked to locate his family by enlisting police and media assistance. Dr. Ona, Chairman of the Department of Surgery, observed that the severity of the brain injury of Lugmoso manifested symptoms of brain death. He requested the Laboratory Section to conduct a tissue typing and tissue cross-matching examination, so that should Lugmoso expire despite the necessary medical care and management and he would be found to be a suitable organ donor and his family would consent to organ donation, the organs thus donated could be detached and transplanted promptly to any compatible beneficiary. Jennifer Misa contacted several radio and television stations to request for air time for the purpose of locating the family of Angelito, as well as Police Station No. 5, Eastern Police District. Certifications were issued by Channel 4, ABS-CBN and GMA attesting that the request made by the NKI was accommodated. Dr. Ona was informed that Lugmoso had been pronounced brain dead by Dr. Aquino, a neurologist, and by Dr. Rafael, a neurosurgeon and attending physician of Lugmoso. Dr. Ona requested Dr. Alano, Executive Director of NKI, to authorize the removal of specific organs from the body of Lugmoso for transplantation purposes. Dr. Alano issued to Dr. Ona a Memorandum stating that Dr. Ona should to make certain that the Department has exerted all reasonable efforts to locate the relatives or next of kin of the said deceased patient and if all the above has been complied with, in accordance with the provisions of Republic Act No. 349 as amended and P.D. 856, permission and/or authority is hereby given. A medical team removed the heart, kidneys, pancreas, liver and spleen of Lugmoso. They transplanted a kidney and the pancreas of Lugmoso to Lee Tan Hoc and the other kidney of Lugmoso to Alexis Ambustan. The transplant operation was completed The remains of Lugmoso was delivered to La Funeraria Oro in Quezon City. Aida Doromal, a cousin of plaintiff, heard the news aired on television that the donor was an eighteen (18) year old boy whose remains were at La Funeraria Oro in Quezon City. Upon receiving the news from Aida, plaintiff and her other children went to La Funeraria Oro, where they saw Arnelito inside a cheap casket. Plaintiff filed with the court a quo a complaint for damages against the medical team composed of Doctors and Dr. Alano in connection with the death of her son Arnelito. Issue: Whether or not Dr. Alano is liable for damages? Ruling: NO, Dr. Alano is not liable for damages. A careful reading of the above shows that petitioner instructed his subordinates to "make certain" that "all reasonable efforts" are exerted to locate the patient's next of kin, even enumerating ways in which to ensure that notices of the death of the patient would reach said relatives. It also clearly stated that permission or authorization to retrieve and remove the internal organs of the deceased was being given ONLY IF the provisions of the applicable law had been complied with. Such instructions reveal that petitioner acted prudently by directing his subordinates to exhaust all reasonable means of locating the relatives of the deceased. He could not have made his directives any clearer. He even specifically mentioned that permission is only being granted IF the Department of Surgery has complied with all the requirements of the law. Verily, petitioner could not have been faulted for having full confidence in the ability of the doctors in the Department of Surgery to comprehend the instructions, obeying all his directives, and acting only in accordance with the requirements of the law. Furthermore, as found by the lower courts from the records of the case, the doctors and personnel of NKI disseminated notices of the death of respondent's son to the media and sought the assistance of the appropriate police authorities as early as March 2, 1988, even before petitioner issued the Memorandum. Prior to performing the procedure for retrieval of the deceased's internal organs, the doctors concerned also the sought the opinion and approval of the Medico-Legal Officer of the NBI. Thus, there can be no cavil that petitioner employed reasonable means to disseminate notifications intended to reach the relatives of the deceased. The only question that remains pertains to the sufficiency of time allowed for notices to reach the relatives of the deceased. If respondent failed to immediately receive notice of her son's death because the notices did not properly state the name or identity of the deceased, fault cannot be laid at petitioner's door. The trial and appellate courts found that it was the EAMC, who had the opportunity to ascertain the name of the deceased, who recorded the wrong information regarding the deceased's identity to NKI. The NKI could not have obtained the information about his name from the patient, because as found by the lower courts, the deceased was already unconscious by the time he was brought to the NKI. Ultimately, it is respondent's failure to adduce adequate evidence that doomed this case. As stated in Otero v. Tan,"[i]n civil cases, it is a basic rule that the party making allegations has the burden of proving them by a preponderance of evidence. The parties must rely on the strength of their own evidence and not upon the weakness of the defense offered by their opponent." Here, there is to proof that, indeed, the period of around 24 hours from the time notices were disseminated, cannot be considered as reasonable under the circumstances. They failed to present any expert witness to prove that given the medical technology and knowledge at that time in the 1980's, the doctors could or should have waited longer before harvesting the internal organs for transplantation. Verily, the Court cannot, in conscience, agree with the lower court. Finding petitioner liable for damages is improper. It should be emphasized that the internal organs of the deceased were removed only after he had been declared brain dead; thus, the emotional pain suffered by respondent due to the death of her son cannot in any way be attributed to petitioner. Neither can the Court find evidence on record to show that respondent's emotional suffering at the sight of the pitiful state in which she found her son's lifeless body be categorically attributed to petitioner's conduct.